Conflict of Interest Abuses in Commercial Banking Institutions

GGD-89-35: Published: Jan 27, 1989. Publicly Released: Feb 27, 1989.

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In response to a congressional request, GAO provided information on conflicts of interest in commercial banking institutions, focusing on: (1) the types of conflicts of interest and associated abuses; (2) how to control conflicts of interest and limit associated abuses; and (3) the impact of expanded banking securities powers on conflicts of interest and associated abuses.

GAO interviewed bankers, regulators, and legal and academic experts, and found that: (1) all concurred that, while conflicts of interest existed in banking institutions, the problems were not widespread; (2) banking institutions can face numerous situations where a bank's interests conflict with those of customers, stockholders, creditors, or deposit insurers; (3) competition, internal controls, and regulatory oversight are factors that deter institutional conflicts of interest and limit abuses; and (4) expanded securities powers might increase the likelihood of institutional abuses and of conflicts of interest. GAO also found that: (1) bank examination reports that it reviewed did not reveal any indications of widespread abuses; (2) data on consumer complaints was inadequate to assess the extent of institutional abuses of conflicts of interest; and (3) some regulators and experts expressed concern about individual insider abuses.

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