Federal Reserve System: Update on GAO's 1996 Recommendations

In a 1996 report, GAO made a number of recommendations to the Board of Governors of the Federal Reserve System for reducing spending and improving the operations of the Federal Reserve System (Federal Reserve). The Federal Reserve has taken actions responsive to most of the 1996 report's recommendations. The Federal Reserve has retained its structure but has sought to consolidate operations and bring common management practices to the 12 Federal Reserve District Banks. In particular, the Federal Reserve now manages the payment services it provides to banks on a systemwide basis. The Federal Reserve has also changed its budgeting, internal oversight, and cost accounting processes in an effort to increase accountability. It has taken other steps to decrease costs in areas identified by the 1996 report. Specifically, the Reserve Banks have consolidated their purchase of some services, such as prescription drug coverage, to take advantage of volume discounts, rather than continuing with the former practice of each individual Reserve Bank purchasing services separately. The Federal Reserve, however, continues not charging for bank examinations. Federal Reserve officials explained that they continue to believe that charging for bank examinations would tip the current balance against state charter banks, and thus be inconsistent with maintaining the dual banking system of state and nationally charter banks. Although a strong argument exists for industry funding of federal supervision and regulation, GAO recognizes the benefits of the dual banking system. Ultimately, it is up to Congress to decide how to fund federal regulation and to balance the differences among the different bank regulators.