International Banking:

Strengthening the Framework for Supervising International Banks

GGD-94-68: Published: Mar 21, 1994. Publicly Released: Mar 21, 1994.

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GAO reviewed U.S. and international efforts to increase international coordination and improve the overall quality of international bank supervision, focusing on: (1) the Basle Committee's efforts to coordinate bank supervision; (2) the effectiveness of the Committee's approach and options to enhance its role in bank supervision; and (3) whether the Foreign Bank Supervision Enhancement Act can serve as an example for implementing international banking supervision standards.

GAO found that: (1) the Committee has improved international banking standards and provided a framework for worldwide banks to strengthen their capital position; (2) the Committee's framework has been fully implemented by all committee member countries and a significant number of nonmember countries; (3) although international bank supervisors have used the Committee's informal approach to set standards, improve bank supervision, and increase bank capital, recent international banking problems demonstrate the need for further compliance with the Committee's supervisory standards; (4) the Committee is considering options to increase standard compliance while preserving national banking sovereignty which include establishing a national supervisory practices clearinghouse and facilitating peer reviews among national supervisory regimes; (5) there is minimal support for creating a supranational regulatory body or increasing the Committee's regulatory power; (6) providing nations with complete and consistent information on national supervisory practices could increase national authorities' ability to make better decisions regarding foreign bank operations, avoid costly duplication efforts, and monitor bank supervisors' progress toward implementing the Committee's standards; (7) peer reviews have provided more rigorous assessments of regulatory practices through self-monitoring; and (8) banking legislation could serve as an example for other nations on how to implement the Committee's international banking supervision principles.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Comptroller of the Currency attended the March 22-23 meeting of the Basle Committee, along with the Senior Deputy Comptroller for Bank Supervision Policy, and will continue to attend as his schedule permits. Senior staff at OCC, the Federal Reserve Board, Federal Reserve of New York, and the Federal Deposit Insurance Corporation have begun regular meetings to discuss and act on Basle Committee initiatives. The Basle Committee has decided not to proceed with a peer review program at this time.

    Recommendation: The Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Chairman of the Federal Deposit Insurance Corporation (FDIC), in consultation with their colleagues on the Basle Committee, should seek an expanded role for the committee without the imposition of a new legal framework or interference with national sovereignty.

    Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency

  2. Status: Closed - Implemented

    Comments: The Federal Reserve Board continues to support the Basle Committee's effort to better coordinate international banking supervision and the Committee continues to improve its ability to do so. For instance, the Committee has collected information on various supervisory regimes through questionnaires. The completed questionnaires are now available to other countries upon their request. Peer review is not under consideration at this time. The Board of Governors chose not to bring this suggestion before the Committee. One other Basle Committee member country recommended peer review to the Committee, and the Committee turned this down, possibly because the Basle Committee's Secretariat lacked the resources to create peer review standards.

    Recommendation: The Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Chairman of the Federal Deposit Insurance Corporation (FDIC), in consultation with their colleagues on the Basle Committee, should seek an expanded role for the committee without the imposition of a new legal framework or interference with national sovereignty.

    Agency Affected: Federal Reserve System: Board of Governors

  3. Status: Closed - Implemented

    Comments: FDIC officials participated in Basle Committee meetings in June and will attend future meetings. The current major topic is regulating derivative instruments. It has been and continues to be FDIC's practice to participate in the Basle Committee meetings to the fullest extent. The Basle Committee has not specifically made plans to institute peer review. FDIC continues to promote the Basle Committee's role as a forum for coordinating international bank supervision and will support an expanded role for the Committee whenever possible.

    Recommendation: The Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, and the Chairman of the Federal Deposit Insurance Corporation (FDIC), in consultation with their colleagues on the Basle Committee, should seek an expanded role for the committee without the imposition of a new legal framework or interference with national sovereignty.

    Agency Affected: Federal Deposit Insurance Corporation

 

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