Summary: Pursuant to a congressional request, GAO assessed the Department of the Treasury's Office of the Comptroller of the Currency's (OCC), the Federal Reserve System's (FRS), and the Federal Deposit Insurance Corporation's (FDIC) supervision of U.S. banks' international lending, focusing on the agencies': (1) compliance with the International Lending Supervision Act of 1983; and (2) actions in response to 1982 GAO recommendations.
GAO found that the agencies: (1) required an inadequate reserve of $2.3 billion for foreign loans; (2) restricted use of their reserving authority to value-impaired loans, which constituted less than 2 percent of loans to less-developed countries (LDC); (3) required inadequate reserves for those loans; and (4) did not require reserves for loans rated as other transfer risk problems (OTRP) or substandard. GAO also found that the agencies' Interagency Country Exposure Review Committee (ICERC): (1) accurately ranked countries in terms of debt-servicing problems; (2) did not forecast the possible debt-servicing problems in countries with weak loans, although it rated 23.8 percent of its loans as weak; (3) used an inaccurate mathematical model in its ratings; and (4) did not promptly communicate with banks regarding weak ratings or debtor countries' probable debt-servicing problems. In addition, GAO found that the agencies' examiners did not adequately: (1) consider country risk and exposure concentrations in capital adequacy assessments; (2) examine bank compliance with required reserves, accounting procedures for profits from loan rescheduling fees, and public disclosure requirements; (3) review the accuracy of banks' country exposure reports of international loans; (4) review banks' country exposure management systems; or (5) comment on weak assets or highlight significant foreign-owned bank assets.
