Summary: GAO reviewed federal supervision of overseas lending by U.S. banks. GAO found that: (1) federal bank regulators have not required adequate levels of loan loss reserves, given the large risk in loans to less-developed countries; (2) regulators should use secondary market prices as the principal consideration in setting reserve requirements; (3) regulators should require reserves for all loans rated less than weak; (4) the Interagency Country Exposure Review Committee's (ICERC) ranking of countries has been very close to that of major international banks and to a ranking derived from secondary market prices; (5) ICERC did not make forecasts for countries with weak loans, the category in which 23.8 percent of all ICERC ratings fell; and (6) some information sources used by ICERC caused it to rate some banks' foreign loans incorrectly. GAO also found that the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve did not adequately: (1) consider country risk and country exposure concentrations in assessments of capital adequacy; (2) examine bank compliance with required reserves, bank accounting for profits from loan rescheduling fees, and bank 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 assets rated weak or highlight significant bank assets owed by foreigners in reports to banks' boards of directors and upper management.
