Bank Oversight:

Fundamental Principles for Modernizing the U.S. Structure

T-GGD-96-117: Published: May 2, 1996. Publicly Released: May 2, 1996.

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GAO discussed efforts to modernize the U.S. federal bank oversight structure, focusing on: (1) how the U.S. oversight structure compares with five other industrialized countries; and (2) whether these countries' structures can be used to assist U.S. reform. GAO noted that: (1) U.S. structural reform should include a more consolidated and comprehensive oversight of companies owning federally insured banks and thrifts, independence from undue political pressure, appropriate accountability and adequate congressional oversight, consistent rules, and enhanced efficiency and reduced regulatory burden; (2) the five countries have oversight structures that are diverse, banking industries that are more concentrated than in the U.S., and banks that are authorized to conduct broad securities and insurance activities; (3) in each of the five countries, there are no more than two national agencies involved in oversight operations; (4) each country was heavily involved in bank oversight and ensured that its ministry of finance was informed of important industry and supervisory developments; (5) the countries' oversight structures have systems of checks and balances to guard against political pressure and maintain the public trust and stability in its financial system; (6) each country has given deposit insurers limited roles and viewed them as primarily a source of funding for bank failures; (7) the oversight structures incorporate mechanisms to ensure consistent oversight and limited regulatory burden; and (8) there are a number of ways that the U.S. can simplify its bank oversight structure.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Dodd Frank Wall Street and Consumer Protection Act of 2010 terminates OTS and transfers its powers to OCC, FDIC and the Federal Reserve. Under Title III of the act, the OCC assumes all former responsibilities and authorities of the OTS other than those with respect to savings & loan holding companies (SLHC) and state savings associations. The Federal Reserve is responsible for all former OTS authorities (including rulemaking) related to SLHC, while the FDIC assumes functions related to the regulation of state savings associations. The transfer date is one year after enactment, unless extended for up to 180 days.

    Matter: Congress may wish to reduce the number of federal agencies with primary responsibilities for bank oversight.

  2. Status: Closed - Not Implemented

    Comments: Treasury and the Federal Reserve are included in bank oversight. Congressional action continues on proposed financial services modernization legislation.

    Matter: Congress may wish to include both the Federal Reserve and the Treasury Department in bank oversight.

  3. Status: Closed - Not Implemented

    Comments: FDIC has such authority. Congressional action continues on proposed financial services modernization legislation.

    Matter: Congress may wish to provide the Federal Deposit Insurance Corporation (FDIC) with necessary authority to protect the deposit insurance funds.

  4. Status: Closed - Implemented

    Comments: The Gramm-Leach-Bliley Act, enacted in November 1999, explicitly provided for functional regulation of specific activities by specific agencies who specialize in supervising those types of activities. The law instructs financial services regulators to rely on one another's work to minimize regulatory burden and ensure consistent supervision of similar activities, with minimal regard for the type of entity that carries them out.

    Matter: Congress may wish to incorporate mechanisms to help ensure consistent oversight and reduce regulatory burden.

  5. Status: Closed - Implemented

    Comments: The Gramm-Leach-Bliley Act, enacted in November 1999, included the concept of functional regulation to minimize regulatory burden and ensure consistent supervision of similar activities. The functional regulation provision activities require that the federal regulators cooperate to share information and minimize regulatory burden. In July 2010, the Dodd-Frank Wall Street Reform Act was enacted which created the Financial Stability Oversight Council to enhance coordination and cooperation among the regulators. This body has played a key role in coordinating regulations and requires certain rulemaking via the Council. The act also created an office of Financial Research that should enhance regulators off-site monitoring of financial markets. Moreover, it consolidated aspects of consumer protection oversight into the Bureau of Consumer Financial Protection. This current regulatory framework has addressed the spirit of the recommendation which is to enhance the level of coordination and cooperation among bank regulators. Therefore, we are closing this recommendation.

    Matter: Should Congress decide to continue to have more than one primary federal bank regulator, it should incorporate the mechanisms to enhance their cooperation and coordination and reduce burden, this should include: (1) expanding the current mandate of the Federal Financial Institution Examination Council (FFIEC) to ensure consistency in rulemaking for similar activities as well as consistency in examinations; (2) assigning specific rulemaking authority in statute to a single agency, as has been done in the past when the Federal Reserve was given statutory authority to issue rules for several consumer protection regulations that are enforced by all of the bank regulators; (3) requiring enhanced cooperation between examiners and banks' external auditors; and (4) requiring enhanced off-site monitoring to better plan and target examinations, as well as to identify and raise supervisory concerns at an earlier stage.


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