Bank Examination for Country Risk and International Lending

Highlights

GAO assessed major aspects of the U.S. bank regulatory authorities' uniform examination system for evaluating and commenting on country risk to U.S. banks with relatively large foreign lendings. The system consists of identifying countries with actual or potential loan repayment problems, calling these loans to the attention of bank management, and evaluating bank internal country exposure management systems.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Office of the Comptroller of the Currency	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 their examiners to use the same universe of banks (all banks reporting under the country exposure reporting system) for making comparisons. This would not preclude the agencies from establishing different categories for separately analyzing banks of different sizes.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 their examiners to use the same universe of banks (all banks reporting under the country exposure reporting system) for making comparisons. This would not preclude the agencies from establishing different categories for separately analyzing banks of different sizes.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 their examiners to use the same universe of banks (all banks reporting under the country exposure reporting system) for making comparisons. This would not preclude the agencies from establishing different categories for separately analyzing banks of different sizes.	Closed – Implemented Please call 202/512-6100 for information..
Office of the Comptroller of the Currency	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 their examiners to include such items as internal control questionnaires, memorandums of discussions with bank officials, sample country studies, and country limit and reporting documentation in supporting workpapers. When such items exist, it should be noted in the workpapers.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This will be reconsidered during the follow-up review.
Federal Deposit Insurance Corporation	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 their examiners to include such items as internal control questionnaires, memorandums of discussions with bank officials, sample country studies, and country limit and reporting documentation in supporting workpapers. When such items exist, it should be noted in the workpapers.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This will be reconsidered during the follow-up review.
Federal Reserve System	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 their examiners to include such items as internal control questionnaires, memorandums of discussions with bank officials, sample country studies, and country limit and reporting documentation in supporting workpapers. When such items exist, it should be noted in the workpapers.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This will be reconsidered during the follow-up review.
Office of the Comptroller of the Currency	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 ask their representatives to better and more clearly communicate the objectives of special comments to bankers.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 ask their representatives to better and more clearly communicate the objectives of special comments to bankers.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 ask their representatives to better and more clearly communicate the objectives of special comments to bankers.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 ask their representatives to the Interagency Committee on Country Exposure Review to request the Federal Reserve Bank of New York to experiment with alternative models to the present screens.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 ask their representatives to the Interagency Committee on Country Exposure Review to request the Federal Reserve Bank of New York to experiment with alternative models to the present screens.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 ask their representatives to the Interagency Committee on Country Exposure Review to request the Federal Reserve Bank of New York to experiment with alternative models to the present screens.	Closed – Implemented Please call 202/512-6100 for information.
Interagency Committee on Country Exposure Review	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 ask their representatives to the Interagency Committee on Country Exposure Review to request the Federal Reserve Bank of New York to experiment with alternative models to the present screens.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 ask their representatives to the Interagency Committee on Country Exposure Review to improve country studies by providing: (1) more discussion, analysis, and projections of key economic variables for the near future; (2) more intensive analysis of monetary and fiscal policies; (3) routine discussion of performance under the most recent International Monetary Fund loans; and (4) a consistent framework for evaluating political and social developments, including the assessment of internal stability, succession, external security threats, relations with the United States, and relations with other countries.	Closed – Not Implemented The agencies do not plan to take any action on this recommendation. According to the agencies, country studies are supplemented by oral presentations during committee meetings. GAO believes that written documentation is needed to ensure consistency between presentations. This issue will be reconsidered during the followup review.
Federal Deposit Insurance Corporation	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 ask their representatives to the Interagency Committee on Country Exposure Review to improve country studies by providing: (1) more discussion, analysis, and projections of key economic variables for the near future; (2) more intensive analysis of monetary and fiscal policies; (3) routine discussion of performance under the most recent International Monetary Fund loans; and (4) a consistent framework for evaluating political and social developments, including the assessment of internal stability, succession, external security threats, relations with the United States, and relations with other countries.	Closed – Not Implemented The agencies do not plan to take any action on this recommendation. According to the agencies, country studies are supplemented by oral presentations during committee meetings. GAO believes that written documentation is needed to ensure consistency between presentations. This issue will be reconsidered during the followup review.
Federal Reserve System	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 ask their representatives to the Interagency Committee on Country Exposure Review to improve country studies by providing: (1) more discussion, analysis, and projections of key economic variables for the near future; (2) more intensive analysis of monetary and fiscal policies; (3) routine discussion of performance under the most recent International Monetary Fund loans; and (4) a consistent framework for evaluating political and social developments, including the assessment of internal stability, succession, external security threats, relations with the United States, and relations with other countries.	Closed – Not Implemented The agencies do not plan to take any action on this recommendation. According to the agencies, country studies are supplemented by oral presentations during committee meetings. GAO believes that written documentation is needed to ensure consistency between presentations. This issue will be reconsidered during the followup review.
Interagency Committee on Country Exposure Review	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 ask their representatives to the Interagency Committee on Country Exposure Review to improve country studies by providing: (1) more discussion, analysis, and projections of key economic variables for the near future; (2) more intensive analysis of monetary and fiscal policies; (3) routine discussion of performance under the most recent International Monetary Fund loans; and (4) a consistent framework for evaluating political and social developments, including the assessment of internal stability, succession, external security threats, relations with the United States, and relations with other countries.	Closed – Not Implemented The agencies do not plan to take any action on this recommendation. According to the agencies, country studies are supplemented by oral presentations during committee meetings. GAO believes that written documentation is needed to ensure consistency between presentations. This issue will be reconsidered during the followup review.
Office of the Comptroller of the Currency	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 have their examiners group countries together in the same way in examination reports.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 have their examiners group countries together in the same way in examination reports.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 have their examiners group countries together in the same way in examination reports.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 their examiners to include analysis beyond country writeups and portfolio compositions in special comments. Such analysis might include comparisons of present exposures, with country limits established by bank management, and with exposures of other banks.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 their examiners to include analysis beyond country writeups and portfolio compositions in special comments. Such analysis might include comparisons of present exposures, with country limits established by bank management, and with exposures of other banks.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 their examiners to include analysis beyond country writeups and portfolio compositions in special comments. Such analysis might include comparisons of present exposures, with country limits established by bank management, and with exposures of other banks.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 ask their representatives to the Interagency Committee on Country Exposure Review to establish criteria for when specially commented exposures require highlighting.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 ask their representatives to the Interagency Committee on Country Exposure Review to establish criteria for when specially commented exposures require highlighting.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 ask their representatives to the Interagency Committee on Country Exposure Review to establish criteria for when specially commented exposures require highlighting.	Closed – Implemented Please call 202/512-6100 for information.
Interagency Committee on Country Exposure Review	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 ask their representatives to the Interagency Committee on Country Exposure Review to establish criteria for when specially commented exposures require highlighting.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 their examiners to routinely review bank country exposure management systems fully when they make country risk examinations.	Closed – Implemented Please call 202/512-6100 for information.
Federal Deposit Insurance Corporation	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 their examiners to routinely review bank country exposure management systems fully when they make country risk examinations.	Closed – Implemented Please call 202/512-6100 for information.
Federal Reserve System	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 their examiners to routinely review bank country exposure management systems fully when they make country risk examinations.	Closed – Implemented Please call 202/512-6100 for information.
Office of the Comptroller of the Currency	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 that examiners routinely follow up on all outstanding recommendations and criticisms with notations in subsequent examination reports.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This item will be considered during the follow-up review.
Federal Deposit Insurance Corporation	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 that examiners routinely follow up on all outstanding recommendations and criticisms with notations in subsequent examination reports.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This item will be considered during the follow-up review.
Federal Reserve System	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 that examiners routinely follow up on all outstanding recommendations and criticisms with notations in subsequent examination reports.	Closed – Not Implemented The agencies do not intend to implement the recommendations at this time. This item will be considered during the follow-up review.

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