Despite Recent Improvements, Bank Supervision Could Be More Effective and Less Burdensome
GGD-82-21: Published: Feb 26, 1982. Publicly Released: Feb 26, 1982.
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GAO evaluated changes made in the supervision of banks since the 1976 study by its Task Force on Federal Supervision of Banks.
Federal bank regulatory agencies have improved bank safety supervision. They have used new laws, procedures, and systems to gather data more efficiently, identify bank problems, and effect solutions to those problems. However, Congress and the regulatory agencies need to reevaluate these laws and procedures to alleviate unnecessary reporting by banks and to make the supervisory process more efficient and effective. Although GAO has studied different aspects of bank supervision, it has not comprehensively determined the overall effect of these changes. The regulatory agencies now use computerized monitoring systems to analyze data regularly reported by banks. Thus, bank problems usually are identified well before they reach a critical stage, and the agencies are paying more attention to bank management practices that cause financial problems. However, their tendency to equate quality of management to a bank's financial condition could be misleading. Regulators, using more structured guidelines, are taking more formal actions against banks with problems. Over half of the bank examinations conducted are modified examinations due to resource limitations. Thus, the agencies should train their staffs to use the modified procedures. A report required to be filed by banks on loans to executive officers and shareholders may be unduly burdensome on banks. Informal efforts taken by regulators to persuade banks to solve management weaknesses could be more effective if they were more specific. A cost benefit analysis should be made of the regulators' computerized surveillance systems.
Matter for Congressional Consideration
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Matter: Congress should eliminate the requirement under the Federal Reserve Act for banks to submit periodic reports to their primary regulators on loans made to their executive officers, unless Congress remains convinced of the value of public disclosure, in addition to supervisory oversight as a deterrent to insider abuses. In addition, Congress should eliminate the requirements under the Federal Deposit Insurance Act that a bank report to its primary regulator a list of certain stockholders and a list of executive officers and shareholders who have extensions of credit from the bank and the aggregate amount of such credit, and that the banks and the agencies make the information available to the public on request. If Congress believes in the value of retaining public disclosure by the banks themselves, Congress should only eliminate the requirement for banks to submit periodic reports to their primary regulator on loans made to their executive officers while retaining the requirements for reports on extensions of credit and public disclosure of such reports.
Recommendations for Executive Action
Status: Closed - Not Implemented
Comments: The agencies disagreed with the recommendation. The issue will be reconsidered in a future overall assessment of the state of supervision with an as yet undetermined start date. It is not considered a time critical recommendation.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should require examiners to make nonbinding but specific written recommendations to banks in examination reports or related correspondence on ways to improve management weaknesses.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Closed - Not Implemented
Comments: The agencies disagreed with the recommendation. The issue will be reconsidered in a future overall assessment of the state of supervision with an as yet undetermined start date. It is not considered a time critical recommendation.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should require examiners to make nonbinding but specific written recommendations to banks in examination reports or related correspondence on ways to improve management weaknesses.
Agency Affected: Federal Deposit Insurance Corporation
Status: Closed - Not Implemented
Comments: The agencies disagreed with the recommendation. The issue will be reconsidered in a future overall assessment of the state of supervision with an as yet undetermined start date. It is not considered a time critical recommendation.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should require examiners to make nonbinding but specific written recommendations to banks in examination reports or related correspondence on ways to improve management weaknesses.
Agency Affected: Federal Reserve System
Status: Closed - Not Implemented
Comments: FDIC has revised the types and frequencies of examinations. Trainees would concentrate on full scope examinations, and modified scope examinations no longer exist. Other agencies believed that their training needs were being served. The issue will be reconsidered in future planning period work.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should ascertain the impact of modified scope examinations on staff training and develop policies on their use that consider training needs.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Closed - Not Implemented
Comments: FDIC has revised the types and frequencies of examinations. Trainees would concentrate on full scope examinations, and modified scope examinations no longer exist. Other agencies believed that their training needs were being served. The issue will be reconsidered in future planning period work.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should ascertain the impact of modified scope examinations on staff training and develop policies on their use that consider training needs.
Agency Affected: Federal Deposit Insurance Corporation
Status: Closed - Not Implemented
Comments: FDIC has revised the types and frequencies of examinations. Trainees would concentrate on full scope examinations, and modified scope examinations no longer exist. Other agencies believed that their training needs were being served. The issue will be reconsidered in future planning period work.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should ascertain the impact of modified scope examinations on staff training and develop policies on their use that consider training needs.
Agency Affected: Federal Reserve System
Status: Closed - Not Implemented
Comments: While the Comptroller will assess cost/benefits in the future, the Federal Reserve and FDIC did not accept the recommendation. A future job, as yet with no start date but in the program plan, will make an indepth study of the surveillance systems.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should formally assess the costs and benefits of their surveillance systems using recognized methods of systems analysis.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Closed - Not Implemented
Comments: While the Comptroller will assess cost/benefits in the future, the Federal Reserve and FDIC did not accept the recommendation. A future job, as yet with no start date but in the program plan, will make an indepth study of the surveillance systems.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should formally assess the costs and benefits of their surveillance systems using recognized methods of systems analysis.
Agency Affected: Federal Deposit Insurance Corporation
Status: Closed - Not Implemented
Comments: While the Comptroller will assess cost/benefits in the future, the Federal Reserve and FDIC did not accept the recommendation. A future job, as yet with no start date but in the program plan, will make an indepth study of the surveillance systems.
Recommendation: The Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, and the Chairman of the Federal Deposit Insurance Corporation should formally assess the costs and benefits of their surveillance systems using recognized methods of systems analysis.
Agency Affected: Federal Reserve System
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