Federal Reserve Could Improve the Efficiency of Bank Holding Company Inspections

GGD-81-79: Published: Aug 18, 1981. Publicly Released: Aug 18, 1981.

Additional Materials:

Contact:

Craig A. Simmons
(202) 512-8678
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

GAO reviewed the Federal Reserve's bank holding company supervision program. The report was done because the number of bank holding companies has grown rapidly, and the Federal Reserve has made a number of changes to improve its supervision and accommodate the increasing workload. GAO wanted to determine whether further revisions in holding company inspection procedures were needed.

GAO found indications that certain operating characteristics of bank holding companies were related to the degree of risk to which the company might be exposed. The risk seemed particularly high if the holding company had credit-extending nonbank activities. GAO found that the Federal Reserve may not be adequately addressing this risk in determining: (1) what information holding companies should be required to report to permit effective monitoring and inspection of these activities; (2) when to make inspections because of potential problems; and (3) how much examination coverage should be given to these activities. Moreover, GAO found that in some districts more information and expertise may be needed to properly evaluate nonbank activities. GAO also found that more flexibility was needed in the Federal Reserve's holding company supervision policy. In addition, the Federal Reserve Bank needs to exercise more control over surveillance actions taken by district banks. Finally, GAO believes that the Federal Reserve could further increase the efficiency of onsite inspections by relying on bank examiners to obtain needed bank holding company data during subsidiary bank examinations.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Federal Reserve believes that its present policy is adequate and no change is warranted.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should revise the inspection manual to limit onsite inspection tasks to those which are needed in each circumstance.

    Agency Affected: Federal Reserve System: Board of Governors

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should establish procedures for evaluating district bank surveillance activities. Such evaluations should prompt establishment of more definitive guidelines and criteria for district bank activities and should ensure that the most appropriate practices, from a programmatic and economic standpoint, are adopted.

    Agency Affected: Federal Reserve System: Board of Governors

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should reassess reporting requirements to improve the information available on the activities of holding companies' nonbank subsidiaries, including peer group data for comparative peer group analysis. This reassessment should attempt to minimize any increased reporting burden by concentrating on collecting only those data required for effective holding company supervision.

    Agency Affected: Federal Reserve System: Board of Governors

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should increase expertise in nonbank industries and improve training and control mechanisms to ensure that the risk of holding companies' nonbanking operations is uniformly and adequately considered in the surveillance and onsite inspection processes.

    Agency Affected: Federal Reserve System: Board of Governors

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should clarify inspection frequency guidelines to encourage district banks to inspect holding companies whenever there is a perceived need, regardless of inspection schedules. In assessing perceived need, the district banks should place greater reliance on surveillance and give more emphasis to companies which have nonbank subsidiaries that extend credit.

    Agency Affected: Federal Reserve System: Board of Governors

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Chairman, Board of Governors of the Federal Reserve System, should develop the concept under which the Federal Reserve would request the Federal bank examiners from each agency to perform needed holding company tasks in the course of their bank examinations. GAO recognized that this concept will not be appropriate in all cases and that its use will depend upon timing, examiner capability and availability, and the economics of each situation. GAO anticipates that this concept will be most appropriate for holding companies that do not conduct nonbanking activities and where the holding company and the subsidiary bank management are essentially the same.

    Agency Affected: Federal Reserve System: Board of Governors

 

Explore the full database of GAO's Open Recommendations »

Jul 25, 2016

Jul 5, 2016

May 6, 2016

Apr 21, 2016

Apr 18, 2016

Apr 12, 2016

Mar 28, 2016

Mar 8, 2016

Feb 16, 2016

Jan 27, 2016

Looking for more? Browse all our products here