Banks and Thrifts: Safety and Soundness Reforms Need to Be Maintained

GAO discussed the condition of the banking and thrift industries, focusing on: (1) the safety and soundness provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA); (2) the condition of the banking and thrift industries' insurance funds; (3) the volume of bank lending; and (4) congressional oversight. GAO noted that: (1) FDICIA requires that banks operate in a safe and sound manner by adopting prescribed reforms, or otherwise be subject to timely and forceful regulatory action; (2) FDICIA requires banks to establish various operational and managerial standards affecting internal controls, information systems, internal audit systems, and other important banking functions which will enhance regulators' ability to act promptly, shift risk from the insurance funds, and make management more accountable; (3) the Financial Accounting Standards Board needs to improve accounting standards to make FDICIA implementation more effective; (4) the condition and performance of banks and thrifts improved in 1992, which improved the condition of the insurance funds, but the future of the banking industry is uncertain and funds are still insolvent; (5) FDICIA did not cause decreased bank lending; (6) concerns about the increased regulatory burden on banks did not account for benefits to the industry, consumers, and the public; and (7) FDICIA implementation requires considerable congressional oversight, but provides a foundation for increased banking industry modernization and business opportunities.