Summary: GAO discussed its report concerning bank examination for country risk and international lending, focusing primarily on the regulatory changes proposed by Federal bank authorities to address the problem of country risk and other issues. GAO noted that country risk has increased in recent years as a growing number of countries have developed repayment difficulties. GAO believes that strengthening U.S. bank regulations can help banks cope with the current economic situation and avoid future exposures, although even a well-designed regulation cannot avert or solve all the problems plaguing banks. The recently adopted risk examination system properly scrutinizes loans to borrowers in countries with potential or actual repayment problems. GAO maintained that, although the system examines country risk in a consistent manner, supervision of the system must improve to avoid inherent weaknesses. GAO believes that the proposed requirement to include a bank's exposures in its composite ratings should be implemented to improve financial statement accuracy. GAO also believes that front-end fees should be treated as interest when loans are a potential risk. GAO supports the congressional goal of greater bank cooperation in the formulation and implementation of economic and monetary policies.
