Bank Supervision: Lessons Learned from Remote Supervision during Pandemic Could Inform Future Disruptions

GAO-22-104659 Published: Sep 08, 2022. Publicly Released: Sep 08, 2022.
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Fast Facts

During the COVID-19 pandemic, federal banking regulators couldn't examine most banks and credit unions in person. So, they changed certain examination practices, especially at smaller institutions. For example, they rescheduled examinations and reviewed scanned copies of loan files.

We found that 3 of 5 regulators who have risk management programs also

  • Updated their programs to reflect pandemic-related changes in risk
  • Reviewed pandemic lessons learned

The other 2 regulators have completed one, but not both, of these steps.

Our recommendations would help regulators prepare for future disruptions to bank examinations.

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What GAO Found

To assess challenges that COVID-19 posed to their supervisory missions, the federal banking regulators convened working groups to assess risks related to conducting fully remote bank examinations, among other actions. The regulators are the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC). Four regulators updated their enterprise risk management (ERM) frameworks to reflect pandemic-related risks. The Federal Reserve has been developing its ERM framework since 2017 and has not yet completed elements to capture risks to the agency's supervisory mission, including those related to the pandemic. The Federal Reserve said it planned to complete these elements but had not documented planned steps or timeframes as of June 2022. Office of Management and Budget guidance highlights the importance of updating ERM elements to reflect changes in risks. Including pandemic-related risks to supervision in its ERM framework would better position the Federal Reserve to manage future disruptions to examinations.

To manage pandemic-related challenges to their supervisory missions, banking regulators deferred examination activities, expanded off-site monitoring of institutions, adjusted telework policies, and provided technology tools and internal guidance to examiners (see figure). In 16 of 20 small group interviews GAO conducted, examiner staff at the agencies said the transition to remote work was smooth. Some examiners noted challenges examining institutions that lacked imaged loan files or technology to allow remote access to bank systems.

Federal Banking Regulators' Actions to Address Pandemic-Related Challenges to Conducting Fully Remote Examinations

Federal Banking Regulators' Actions to Address Pandemic-Related Challenges to Conducting Fully Remote Examinations

The Federal Reserve, FDIC, NCUA, and CFPB have taken or planned steps reflecting GAO-identified practices to identify and share lessons learned. Post-crisis assessments to identify lessons learned can help agencies develop strategies for future disruptions. As of June 2022, OCC had not yet undertaken or planned a review of lessons learned from its pandemic response. Taking additional steps to review lessons learned such as collecting, analyzing, and sharing information could help OCC better prepare for future disruptions.

Why GAO Did This Study

Limitations on in-person meetings and travel because of the COVID-19 pandemic presented challenges to federal banking regulators conducting on-site examinations of depository institutions.

The CARES Act includes a provision for GAO to monitor and oversee the federal government's response to COVID-19. This report examines how the federal banking regulators (1) identified and assessed risks and challenges the pandemic posed to their supervisory missions, (2) made changes to address these risks and challenges, and (3) assessed lessons learned from their pandemic responses.

GAO reviewed the five agencies' policies and guidance, analyzed agencies' reviews of their performance during the pandemic, and interviewed officials. GAO also conducted 20 small-group interviews with nongeneralizable samples of between two and five groups of examiners from each agency (total of 110 examiners across the five agencies).

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GAO is making two recommendations, including that the Federal Reserve develop and document steps and timeframes to include pandemic-related risks to supervision in its ERM framework and that OCC review lessons learned from the pandemic to better prepare for future disruptions to examinations. The Federal Reserve neither agreed nor disagreed with GAO's recommendation and OCC said it would complete a review by March 2023.

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Reserve System The Federal Reserve's Chief Operating Officer should develop and document specific action steps and time frames for completing the components of the Federal Reserve's enterprise risk management framework related to identifying and assessing risks to its supervisory mission, such as those caused by the COVID-19 pandemic. (Recommendation 1)
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Office of the Comptroller of the Currency OCC's Senior Deputy Comptrollers of Large Bank Supervision and Mid-Size and Community Bank Supervision should review potential lessons learned related to how OCC managed adjustments to supervisory activities during the COVID-19 pandemic. This review should include collection and analysis of information to identify aspects of fully remote examinations that worked well and areas for improvement. (Recommendation 2)
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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