Bank Oversight Structure:

U.S. and Foreign Experience May Offer Lessons for Modernizing U.S. Structure

GGD-97-23: Published: Nov 20, 1996. Publicly Released: Nov 20, 1996.

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Pursuant to a congressional request, GAO reviewed its previous work on the structure and operations of bank oversight in five countries, focusing on: (1) aspects of those systems that may be useful for Congress to consider in any future modernization efforts; (2) perceived problems with federal bank oversight in the United States; and (3) principles for modernizing the U.S. federal bank oversight structure.

GAO found that: (1) the five foreign banking systems reviewed had less complex and more streamlined oversight structures than the United States; (2) in all five countries, fewer national agencies were involved with bank regulation and supervision than in the United States; (3) in all but one of these countries, both the central bank and the ministry of finance had some role in bank oversight, and several of these countries relied on the work of the banks' external auditors to perform certain oversight functions; (4) in all cases, there was one entity that was clearly responsible and accountable for consolidated oversight of banking organizations as a whole; (5) the bank oversight structure in the United States is relatively complex, with four different federal agencies having the same basic oversight responsibilities for those banks under their respective purview; (6) industry representatives and expert observers have contended that multiple examinations and reporting requirements resulting from the shared oversight responsibilities of four different regulators contribute to banks' regulatory burden, and that the federal oversight structure is inherently inefficient; (7) having one agency responsible for examining all U.S. bank holding companies, with a different agency or agencies responsible for examining the holding companies' principal banks, could result in overlap and a lack of clear responsibility and accountability for consolidated oversight of U.S. banking operations; and (8) any modernized banking structure should provide for clearly defined responsibility and accountability for consolidated and comprehensive oversight, independence from undue political pressure, consistent rules, consistently applied for similar activities, and enhanced efficiency and reduced regulatory burden.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) that reduced the number of federal agencies with primary responsibilities for bank oversight from five to four. The Act abolished the Office of Thrift Supervision and merged it into the Office of the Comptroller of the Currency.

    Matter: If Congress decides to modernize the U.S. system, Congress should reduce the number of federal agencies with primary responsibilities for bank oversight. GAO believes that a logical step would be to consolidate the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation's (FDIC) primary supervisory responsibilities into a new, independent federal banking agency or commission. Congress could provide for this new agency's independence in a variety of ways, including making it organizationally independent like FDIC or the Federal Reserve System (FRS). This new independent agency, together with FRS, could be assigned responsibility for consolidated, comprehensive supervision of those banking organizations under its purview, with appropriate functional supervision of individual components.

  2. Status: Closed - Implemented

    Comments: The Gramm-Leach-Bliley Act, enacted in 1999, preserved roles for both FRS and the Treasury in financial services regulation. FRS will be the umbrella regulator for financial holding companies, the entities established by the Act to engage in the variety of additional activities that were previously not available to banking institutions. The OCC, an agency within the Department of Treasury, will continue to supervise national banks. While the FRS is instructed to rely on the work of functional regulators to minimize regulatory burden, as umbrella regulator they will have access to appropriate information as well as influence over supervisory decision making.

    Matter: If Congress decides to modernize the U.S. system, Congress should continue to include both FRS and Treasury in bank oversight. To carry out its primary responsibilities effectively, FRS should have direct access to supervisory information as well as influence over supervisory decisionmaking and the banking industry. The foreign oversight structures GAO viewed showed that this could be accomplished by having FRS be either a direct or indirect participant in bank oversight. For example, FRS could maintain its current direct oversight responsibilities for state chartered member banks or be given new responsibility for some segment of the banking industry, such as the largest banking organizations. Alternatively, FRS could be represented on the board of directors of a new consolidated banking agency or on FDIC board of directors. Under this alternative, FRS staff could help support some of the examination or other activities of a consolidated banking agency to better ensure that FRS receives first hand information about, and access to, the banking industry.

  3. Status: Closed - Implemented

    Comments: The Gramm-Leach-Bliley remained silent, and therefore maintained, FDIC's authority to protect the deposit insurance funds.

    Matter: To carry out its mission effectively, Congress should continue to provide FDIC with the necessary authority to protect the deposit insurance funds. Under any restructuring, GAO believes FDIC should still have an explicit backup supervisory authority to enable it to effectively discharge its responsibility for protecting the deposit insurance funds. Such authority should require coordination with other responsible regulators, but should also allow FDIC to go into any problem institution on its own without the prior approval of any other regulatory agency. FDIC also needs backup enforcement power, access to bank examinations, and the capability to independently assess the quality of those examinations.

  4. Status: Closed - Implemented

    Comments: The Gramm-Leach-Bliley Act, enacted in November 1999, adopted a framework of functional regulation for financial holding companies that includes the FRS as umbrella regulator with the instruction that it is to rely on functional regulators for the specific activities of the institutions, without regard to the entity doing the activity. This was done to minimize regulatory burden and to ensure consistent supervision of similar activities. To successfully implement functional regulation, the federal regulators are required to cooperate and share information as appropriate.

    Matter: To carry out its mission effectively, Congress should incorporate mechanisms to help ensure consistent oversight and reduce regulatory burden. Reducing the number of federal bank oversight agencies from the current four should help improve the consistency of oversight and reduce regulatory burden. Should Congress decide to continue having more than one primary federal bank regulator, GAO believes that Congress should incorporate mechanisms into the oversight system to enhance cooperation and coordination between the regulators and reduce regulatory burden.


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