Bank and Thrift Failures: The Government Could Do More to Pursue Fraud and Wrongdoing

GAO discussed the financial institution crisis, focusing on: (1) the extent that criminal and negligent behavior contributed to failures or losses to deposit insurance funds; (2) the difficulty of investigating and prosecuting financial institution fraud; (3) enforcement problems that could lead to legislative changes; and (4) steps to prevent future financial institution fraud. GAO noted that: (1) fraud and wrongdoing played a significant role in the financial institution crisis; (2) the Department of Justice (DOJ) has received referrals of alleged criminal activity by former directors, officers, or other principal officials associated with half of the failed banks and thrifts; (3) DOJ, the Federal Deposit Insurance Corporation (FDIC), and the Resolution Trust Corporation (RTC) have addressed criminal fraud and civil wrongdoing, but DOJ has not adequately coordinated or managed the government's efforts to investigate and prosecute financial institution fraud; (4) FDIC and RTC have not pursued all professional liability claims against former directors, officers, and other professionals of failed thrifts and banks; and (5) stronger oversight of financial institutions is critical to identifying unsafe and unsound practices, including fraud and negligence.