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Inspectors General: Mandated Studies to Review Costly Bank and Thrift Failures

GGD-95-126 Published: Jul 31, 1995. Publicly Released: Jul 31, 1995.
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Highlights

Pursuant to a legislative requirement, GAO: (1) assessed the preparations, procedures, and audit guidelines that certain Inspectors General (IG) have established for material loss reviews (MLR); (2) verified the information contained in the MLR reports; (3) recommended improvements in bank supervision based on MLR reports issued between July 1, 1993, and June 30, 1994; and (4) assessed the economy and efficiency of the MLR process.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress may wish to consider whether the current MLR requirement, which requires IG to report on bank and thrift failures costing the deposit insurance funds in excess of $25 million, is a cost-effective means of achieving the requirement's intended benefit--to help improve bank supervision. If it determines that the requirement is not cost-effective, Congress can choose to either repeal or amend the requirement. Of these options, amending the current MLR requirement may be more desirable because it would allow the IG to continue their bank supervision work and also provide them greater flexibility in managing their resources.
Closed – Not Implemented
Congress has not yet taken action.
Congress should consider repealing the mandate to review MLR on an annual basis.
Closed – Implemented
Action was completed by passage of P.L. 104-316.

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Deposit Insurance Corporation The Inspector General, FDIC, should, in future MLR reports, take steps to more fully assess the effectiveness of FDIC enforcement actions.
Closed – Implemented
The agency implemented the recommendation in the two MLR reports issued subsequent to the GAO report. The MLR reports assessed the effectiveness of FDIC enforcement actions against troubled banks and made recommendations for improvement.

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Topics

Auditing proceduresAuditing standardsBank examinationBank failuresBank managementInspectors generalInsured commercial banksLossesReporting requirementsSavings and loan associations