Summary: Insider fraud and other problems were evident in 61 percent of 286 bank failures in 1990 and 1991, according to investigations of those failures by the Federal Deposit Insurance Corporation (FDIC). GAO found that in 26 percent of the failures, FDIC investigators cited insider problems as one of the major causes. During the three years before these banks failed, federal bank examiners cited the banks for a total of 561 insider violations. Even though insider violations were cited and enforcement actions were taken, the banks still went under. In a review of federal examination reports for 13 open and relatively healthy banks, GAO discovered insider violations similar to those found in the failed banks. In general, GAO found that examiners were not as effective in spotting insider problems at the failed banks when the banks were operating as investigators were after the banks had failed. GAO also found that examiners often failed to adequately communicate to bank boards and management the potential seriousness of problems and violations; as a result, the problems went uncorrected and became more serious. At the same time, bank boards of directors and bank management often failed to take steps to understand the depth of the problems examiners were trying to explain.
