Inspectors General:

Mandated Studies to Review Costly Bank and Thrift Failures

GGD-95-126: Published: Jul 31, 1995. Publicly Released: Jul 31, 1995.


Thomas J. McCool
(202) 512-8678


Office of Public Affairs
(202) 512-4800

Pursuant to a legislative requirement, GAO: (1) assessed the preparations, procedures, and audit guidelines that certain Inspectors General (IG) have established for material loss reviews (MLR); (2) verified the information contained in the MLR reports; (3) recommended improvements in bank supervision based on MLR reports issued between July 1, 1993, and June 30, 1994; and (4) assessed the economy and efficiency of the MLR process.

GAO found that the IG reviewed have satisfied their MLR responsibilities by: (1) establishing a statement of understanding that coordinates their performance of MLR; (2) initiating and completing several pilot studies; (3) hiring staff with bank and audit experience; and (4) developing relevant training programs and comprehensive audit guidelines. In addition, GAO found that: (1) if MLR guidelines are implemented correctly, they will be adequate to determine the causes of bank failures and the quality of bank supervision; (2) the costs associated with producing MLR reports can be considerable and may cause temporary operational disruptions to IG offices; and (3) MLR requirements do not always give IG sufficient time to review reports prepared by other Federal Deposit Insurance Corporation (FDIC) officials who investigated causes of bank failures.

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

    Matters for Congressional Consideration

    Matter: Congress may wish to consider whether the current MLR requirement, which requires IG to report on bank and thrift failures costing the deposit insurance funds in excess of $25 million, is a cost-effective means of achieving the requirement's intended benefit--to help improve bank supervision. If it determines that the requirement is not cost-effective, Congress can choose to either repeal or amend the requirement. Of these options, amending the current MLR requirement may be more desirable because it would allow the IG to continue their bank supervision work and also provide them greater flexibility in managing their resources.

    Status: Closed - Not Implemented

    Comments: Congress has not yet taken action.

    Matter: Congress should consider repealing the mandate to review MLR on an annual basis.

    Status: Closed - Implemented

    Comments: Action was completed by passage of P.L. 104-316.

    Recommendation for Executive Action

    Recommendation: The Inspector General, FDIC, should, in future MLR reports, take steps to more fully assess the effectiveness of FDIC enforcement actions.

    Agency Affected: Federal Deposit Insurance Corporation

    Status: Closed - Implemented

    Comments: The agency implemented the recommendation in the two MLR reports issued subsequent to the GAO report. The MLR reports assessed the effectiveness of FDIC enforcement actions against troubled banks and made recommendations for improvement.

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