Federal Examinations of Financial Institutions:

Issues That Need To Be Resolved

GGD-81-12: Published: Jan 6, 1981. Publicly Released: Jan 6, 1981.

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Key issues were identified which the Federal Financial Institutions Examination Council (Council) must address if it is to be successful in developing uniform examination principles and standards. Examination philosophies and practices followed by five Federal regulatory agencies in examining financial institutions were described and the effects and differences of the practices noted. The five agencies described included the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the National Credit Union Administration.

GAO surveyed the practices followed by the agencies in examining the commercial activities of financial institutions and found that: (1) there are differing practices among and even within agencies regarding acceptance of examinations made by State regulatory agencies in lieu of their own; (2) the agencies have different criteria for scheduling examinations which generally do not adequately weigh the risks of institutional failure or problems against the cost and burden of examinations, with the result that some institutions may be examined more frequently or less frequently than necessary; (3) the use of timesaving techniques varies among the agencies; (4) the agencies have different policies regarding reliance on institutions' internal review groups, with the result that some work that is competently performed by these groups is duplicated; (5) the amount of data included in the examination reports varied among the agencies, and some data included in the reports did not appear to be useful to either the regulator or the financial institution; (6) the agencies place varying emphasis on examining management activities in the institutions even though there appears to be little difference in examination objectives among the five Federal agencies; and (7) the agencies have different policies regarding specific guidelines for conducting and documenting examinations.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Federal Financial Institutions Examination Council should develop examination standards which limit the amount of detailed work performed during a routine examination unless potential problems are detected.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should develop examination principles which require Federal examiners to rely on functions adequately performed by others such as internal and external audit and internal loan review departments.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institution Examination Council should develop uniform standards for reporting the results of examinations which limit the amount of detailed data to that which is necessary for effective supervision.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendation is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should develop a Federal Government-wide policy under which Federal regulators, using the criteria, developed to assess the quality of examinations performed by State agencies, would assess and monitor the quality of State examinations and accept examinations that are competently performed by State agencies in lieu of their own.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should define the various regulators' supervisory role, in particular as it relates to the routine and systematic examination of management in financial institutions without unsafe and unsound financial conditions.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inablilty to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institution Examination Council should prescribe uniform principles and standards consistent with the above identified supervisory role and commensurate with an acceptable level of risk and cost.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institution Examination Council should define, with the guidance of the congressional legislative oversight committees, how forcefully the regulators should promote the establishment and maintenance of sound management.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should include in its prescribed principles and standards the requirement that Federal regulators develop examination procedures that clearly identify (1) examination objectives; (2) examination tasks required to achieve the objectives; and (3) documentation required to fully support report comments, conclusions, and recommendations and to provide a basis for supervisory review.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Governent-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should develop a system for determining the timing of examinations which is based on a perceived need to examine rather than on the basis of a static timeframe.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recommendations is anticipated.

    Recommendation: The Federal Financial Institutions Examination Council should develop criteria for Federal regulators to assess the quality of examinations performed by State agencies, and to monitor the State's examination programs to assess changes which may affect the acceptability of the States' programs for Federal needs.

    Agency Affected: Federal Financial Institutions Examination Council

    Status: Closed - Not Implemented

    Comments: The Council has made little progress in establishing examination uniformity. A GAO report to Congress will discuss the Council's inability to develop Government-wide examination policies. If Congress wants uniform supervision of financial institutions, consolidation of the Federal regulatory structure is needed. No further action by the Council to implement the recomendations is anticipated.

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