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Bank Supervision: Prompt and Forceful Regulatory Actions Needed

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Report Type Reports and Testimonies
Report Date March 14, 1991
Report No. T-GGD-91-15
Subject
Summary:

GAO discussed the effectiveness of the federal bank regulatory supervision and enforcement process. GAO noted that: (1) regulators reported that problems in bank assets, earnings, or management primarily caused capital difficulties; (2) despite the progression of problems leading to capital difficulties, regulators focused their enforcement actions on capital, not the underlying causes of capital depletion; (3) when the regulators used the strongest available actions to address capital difficulties, the banks were more likely to improve, and when they chose less stringent actions, the banks in question did not improve; and (4) in 37 of 72 cases, regulators could and should have stronger actions. GAO believes that the effectiveness of bank supervision would be improved by developing a tripwire system of supervisory enforcement that requires prompt and forceful regulatory action tied to specific unsafe banking practices.

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