Formal Supervisory Process for Savings and Loan Associations Should Be Strengthened

GGD-81-91: Published: Sep 17, 1981. Publicly Released: Sep 17, 1981.

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GAO assessed the ability of the Federal Home Loan Bank Board (FHLBB) to examine and supervise members of the savings and loan industry. The effectiveness of the Board's supervision of savings and loan associations is extremely critical at this time since many industry members are experiencing financial difficulties.

Despite the increase in the number of savings and loan associations that are of supervisory concern to FHLBB, the use of formal supervisory actions has declined. This decline is caused by the ambiguity of FHLBB policy, the untimely processing of formal actions, and the indecisiveness of supervisory personnel. Considerable judgment must be exercised by the supervisory personnel as to when and what type of actions should be taken against noncomplying or troublesome associations. In cases where informal actions are ineffective, stronger formal actions may be necessary, including cease and desist orders and supervisory agreements. However, because of policy and processing problems, supervisory agreements and cease and desist orders are not readily available for use. Consequently, supervisory personnel place greater reliance on informal actions. As a result, GAO believes that FHLBB ability to supervise its members is reduced. The state examiner training program was created to alleviate these problems, but it is not adequately controlled and administered by FHLBB. Consequently, the program is not linked to FHLBB goals and is not fulfilling the intent of Congress. GAO continues to believe that FHLBB should make the maximum use possible of state examinations and reports. However, FHLBB does not have the necessary control to properly administer and manage the plan because of the dual federal and state administration of the training program.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The FHLBB believes it exerts as much control over the subject program as the legislation provides. More recent FHLBB actions since this review indicate the FHLBB has assumed greater control than GAO had recommended. Further followup is unnecessary.

    Recommendation: The FHLBB should assume greater control over the selection of the states from which examiners are trained.

    Agency Affected: Federal Home Loan Bank Board

  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 FHLBB should accept the recommendations of the Office of General Counsel Compliance Division to eliminate prior FHLBB approval for formal investigations and the negotiation of consent cease and desist orders.

    Agency Affected: Federal Home Loan Bank Board

  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 FHLBB should direct the Office of Examinations and Supervision (OES) to prescribe the uniform principles and standards for supervisory agents and OES personnel as to how and when formal supervisory tools, including an expanded supervisory agreement, should be used.

    Agency Affected: Federal Home Loan Bank Board

  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 FHLBB should clarify its position on the extent to which formal enforcement actions should be pursued in supervising the savings and loan industry.

    Agency Affected: Federal Home Loan Bank Board

  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 FHLBB should delegate to supervisory agents the authority to use supervisory agreements for problems other than net worth failure.

    Agency Affected: Federal Home Loan Bank Board

  6. Status: Closed - Not Implemented

    Comments: The FHLBB believes it is following the thrust of the recommendation and, based upon GAO observations, it probably is. The presence of GAO during the audit made FHLBB more aware of proper actions in this area; FHLBB awareness has been increased. Further followup is unnecessary.

    Recommendation: The FHLBB should select the states from which examiners are trained on the basis of criteria which will give priority to examiners needing training from those states participating in or offering the greatest potential for participation in joint examination or shared reporting programs.

    Agency Affected: Federal Home Loan Bank Board

 

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