Thrift Failures: Costly Failures Resulted From Regulatory Violations and Unsafe Practices

Highlights

GAO reviewed the Federal Savings and Loan Corporation's (FSLIC) activities to: (1) identify the common characteristics of the most costly failed thrifts, focusing on violations of federal laws or regulations, related unsafe practices, and fraud and insider abuse; (2) compare and contrast the characteristics with solvent thrifts; and (3) identify the impact of deregulation, regional or local economic factors, and federal regulators' supervision and enforcement efforts for both types of thrifts.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
Any legislation that Congress passes restructuring regulatory and insurance activities of the thrift industry should include provisions for certain regulatory and examination responsibilities for the insurer.	Closed – Implemented	The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) includes provisions which provide the Federal Deposit Insurance Corporation the authority to examine insured thrifts and limited regulatory authority, especially over state-chartered thrifts.
As a condition for deposit insurance, Congress should enact legislation requiring each insured thrift to prepare an annual management report which: (1) describes management's responsibility for preparing financial statements and for establishing and maintaining an effective internal control structure; and (2) contains management's assessment of the effectiveness of the internal control structure.	Closed – Implemented	The House Banking Committee had a management report requirement in its version of FIRREA. The requirement was deleted in conference. No further action is planned.
As a condition for deposit insurance, Congress should enact legislation requiring each insured thrift to prepare an annual management report which: (1) describes management's responsibility for complying with laws and regulations relating to the safety and soundness of thrift operations and for establishing methods to monitor compliance; and (2) contains management's assessment of the thrift's compliance with laws and regulations related to operations.	Closed – Implemented	The House Banking Committee had a management report requirement in its version of FIRREA. The requirement was deleted in conference. No further action is planned.
As a condition for deposit insurance, Congress should enact legislation requiring each insured thrift to have the thrift's independent auditor report on the management assertions described and submit such reports with the independent auditor's audit report to the thrift's regulator.	Closed – Implemented	The House Banking Committee had an auditor review the requirement in its version of FIRREA. The requirement was deleted in conference. No further action is planned.
Congress should enact legislation requiring that insurers identify applicable laws and regulations which have material consequences on the safety and soundness of thrift operations to be reviewed and reported on in management reports.	Closed – Implemented	The House Banking Committee included such a requirement in its version of FIRREA. The requirement was deleted in conference. No further action is planned.

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Topics

Auditing and Financial Management

AuditsBank failuresBank managementBanking regulationFederal corporationsInsured commercial banksInternal controlsRegulatory agenciesReporting requirementsSavings and loan associations