Summary: The Inspectors General (IG) at the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury issued a total of four material loss review (MLR) reports on banks that failed or whose losses were recognized during the second year of the MLR mandate. GAO found that the four banks failed for similar reasons: rapid growth, excessive loan concentrations in commercial real estate, poor internal controls, and violations of laws and regulations. The reports also cited weaknesses in the bank regulators' oversight of these institutions. GAO is not making any general recommendations to the bank regulators because the relatively small number of reports issued during the first two years of the mandate--six--does not provide a basis for reaching overall conclusions about the quality of supervisory practices. In GAO's view, the limited basis that these reports provide for making recommendations about overall bank supervision raises questions about the cost-effectiveness of the MLR process as currently structured. Another reason to question the cost-effectiveness of the current process is that some MLR requirements are relatively inflexible and divert IG staff and resources from broader reviews of the quality of bank supervision.
