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DOCUMENT RESUME 00317 - [A0751138] [Study on Federal supervision of State and National Banks]. February 1, 1977. 21 pp. + enclosure (4 pp.). Testimony before the Hcuse Committee on Banking, Currency and Housing: Financial Institutions Supervision, Recalaticn and Insurance Subcommittee; the House Committee on Government Operations: Commerce, Consumer and Monetary AfaiJrs Subcommittee ; by Elmer B. Staats, Comptroller General. Issue Area: Internal Auditing Systems (200); Personnel Management and Compensation (300). Contact: Office of the Comptroller General. Budget Function: General Government: Central Fiscal Operations (803). Organization Concerned: Federal Deposit Insurance Corp.; Federal Reserve System; Office of the Comptroller of the Currency. Congressional Relevance: House Committee on Banking, Currency and Housing: Financial Institutions Supervision, Regulation and Insurance Subcommittee; House Committee cn Government operations: Commerce, Consumer and Monetary Affairs Su committee. Authority: National Banking Act. Edge Act. Financial Institutions Supervisory Act of 1966. Federal Reserve Act of 1913. Banking Act of 1933. Several Congressional committees requested the evaluation of the effectiveness of the supervisory efforts of the three Federal agencies involved in monitoring banking operations, because of the increasing instability of banks. The study objectives were to evaluate the agencies' efforts to identify unsound conditions and violations of laws in banks, and cause bank management to take corrective actions. Adverse economic condition- contributed to some bank failures, but generally embezzlement and poor management of loans were the cause. Problems were not corrected because: (1) the regulatory agencies were reluctant to use their legal authority to force the banks to change, (2) the agencies did not consult with bank boards, (3) examinations were set up on a time basis rather than a problem solving basis, and (4) recommendations were not generally made as to how to solve problems. The agencies should revise their exanination prac-tices and frequencies to better identify problems. Examination reports and meetings with bank boards should follow all exam nations. More aggressive policies should be developed for the use of formal actions against problem banks. Better training and screening of potential examiners should be implemented. The three agencies, either through their own initiative or legislation, should coordinate their efforts sore closely. More stringent procedures for handling charter applications should be devised. (SS) OQ UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. FOR RELEASE ON DELIVERY EXPECTED AT 10:00 A.M. EST TUESDAY, FEBRUARY 1, 1977 STATEMENT ELMER B. O7 STAATS COMPTROLLER GENERAL OF THE UNITED STATES BEFORE THE SUBCOMMITTEE ON FINANCIAL COMMITTF- ON BANKING, INSTITUTIONS CURRENCY AND HOUSING AND THE SUBCOMMITTEE ON COMMERCE, CONSUMER AND MONETARY AFFAIRS COMMITTEE ON GOVERNMENT OPERATIONS UNITED STATE HOUSE OF REPRESENTATIVES Mr. Chairmen: We are pleased to be here at your invitation to discuss our report on Federal supervision oi' State and by the and Comptroller of the the Federal Deposit Currency, the Federal Insurance Corporation. national banks Reserve System, Our study was made Subcommittees agencies from your that we study the effectiveness of the three in carrying out bilities. and in response to requests The Senate Urban Affa rs their bank supervisory Committee was also on Banking, interested responsi- Housing in having such a study made. As you aae aware, the General Accounting Office does not have statutory authority to audit the Federal or the Comptroller authorized of the Currency. Reserve Although we h,e to audit the FDIC, our right of access to their bank examination records has long been a matter of dispute between FDIC and GAO. Because we lacked the statutory authority, written agreements with the three 1976 to obtain access correspondence A principal we entered into agencies in April and May of to bank examination reports and files which were essential to making this study. condition of the agreements was that we would not disclose any information about specific banks, officers, or customers. We also agreed that we not examine any banks ourselves but would accept found by the three to independently agencies' would the facts We made no attempt evaluate the soundness of any of the banks included in our samples. tise in examiners. bank We depended on the examiners' identifying bank problems and on evidence in the - 2 - exper- agencies' taken. files showing the followup actions they had We reviewed examination reports and correspondence files for a general sample of 600 banks, 294 problem banks, and 30 failed banks. Before discussing the results of our study, it might be helpful to recall the events which led up to your requests that we review the performance of the three agencies. During the months preceding yuur reque3ts, several large banks had failed, and there had been much publicity about the so-called lists of "problem banks." It was also reported that some of the Nation's largest banks were on these lists. These events evoked concern in the Congress about the banking industry and how well it is regulated by the Federal supervisory agencies. With this background, we focused our study primarily on determining: -- Whether bank examinations are of sufficient scope to identify banks which are likely to run into serious management or financial difficulties, and -- Whether supervisory agencies can and do follow through on their findings of problems in banks to see that corrective actions are taken by bank managers. - 3 - The three supervisory agencies were given an opportunity to review a draft of our report and their written comments are included as appendices to the report. In my statement this morning. I would like to present to you our key observations resulting 1. A detailed analysis of 30 from: banks that failed in the period 1971-1976. 2. Our review of the basic approach and methodology of bank examinations. 3. Our analysis of the actions taken by the to encourage bank managers and directors lems identified 4. to correct prob- in examinations. A Questionnaire mailed their views three agencies about the to about objectives 1,600 bankers asking and worth of Federal bank supervision. Although not is a fundamental specifically addressed in our report, there issue underlying bank regulation which the regulatory agencies must constantly deal with. The issue is how much regulation of banking is necessary to assure a sound banking industry. If carried to the extreme, ing agencies could become so zealous with the banks that they, management of the banks. constantly try to strike the regulat- in their dealing- in effect, would take over the Thus, the regulating agencies must a balance between assuring soundness - 4 - of the banking industry and promoting healthy competition among the banks without becoming involved in day-to-day management decisions. WHAT LESSONS CAN BE DRAWN FROM RECENT BANK FAILUFL? In our study, we analyzed several of the recent failures to see what lessons might be drawn from them. In 1976 there were 16 bank failures, the largest number in any one year since 1942. Yet, this number represents only about one-tenth of one percent of all banks. Deposits in those 16 banks totaled almost $900 million, but the vast majority of these deposits were protected either through deposit insurance or by another bank assuming the deposits. In spite of the large failures in recent years, the Deposit Insurance Fund has continued to grow. In our study, we reviewed the examination reports and correspondence relating to 30 of the 42 banks that failed between January 1971 and June 1976. We found that 14 of those failures were caused by improper or self-serving -5- loans to bank employees or directors. Eight others were caused by frauds or other defalcations, and the remaining eight by general loan mismanagement. Although economic conditions in the early 1970's did contribute to the failures, the basic underlying causes were the management practices of the banks. Further details of our analysis of failed banks are included in chapter 9 of our report including specific case studies. One factor common to most of the failures was that the banks' boards of directors failed tc fulfill their responsi- bilities for overseeing bank operations. Bank examination records showed that examiners had readily identified the poor practices that eventually led to the bank failures well before the banks closed. The agencies' major difficulty was in getting the banks to correct those problems. The supervisory agencies usually relied on informal methods to influence bank managers to solve problems. These methods--such as meeting with bank officials, requiring progress reports from the banks, and scheduling more frequent bank examinations--obviously were not effective in the cases of failed banks. Their managers and directors did not respond to these technioues. - 6- The agencies then could have turdied to their formal legal powers, such as removing bank officials, issuing cease and desist orders, and others which I shall discuss later. Of the 30 cases we studied, formal action was taken in only 8 of them--and then only after the banks' problems had become quite serious. We believe that the supervisory agencies did not make effective use of their formal powers in dealing with the banks that failed. Notwithstanding this fact, we think certain additional powers would help the agencies in cases like these, and I shall elaborate on that later. ARE BANK EXAMINATIONS OF ADEQUATE SCOPE? We reviewed the agencies' bank examination practices for the 1971-75 period. We found that -- Examination procedures followed by the agencies were much alike. They looked at the same things and did the same kinds of analyses and evaluations. The major emphasis of the agencies' examination efforts was on evaluating quality of assets, adequacy of capital, and quality of management. -- Also examinations have placed great emphasis on analyzing the bank's condition at the time of the examination. - 7 - While this approach has been reasonably effective in identifying problems in banks, did it often not address the underlying causes of the problems, as poor loan policies or weak internal controls. such -- FDIC and the Federal Reserve have attempted the banks they supervise at least once to examine The a year. Comptroller of the Currency is required by law to examine national banks at in each 2-year period. least three times view, the number, of times not be based Rather, upon a rigid the agencies, nations and In our a bank is examined should frequency requirement. using the results of previous exami- information from reports submitted by banks, should schedule examinations based on an evaluatlun of a bank's soundness, and the quality of its policies, procedures, practices, controls, -- Examination reports also audit, and management. showed that the agencies only rarely reported violations of consumer protection laws and regulations. have not They acknowledged that they aggressively monitored consumer protection law compliance, approaches. and they have begun revising their There were many new laws enacted - 8 - in this area in the past few years and it has taken the agencies some time to gear up their enforcement program and develop special training programs for their examiners. The banks examined by FDIC and the Federal Reserve are also examined by State examiners. Sometimes FDIC and the Federal Reserve conducted their examinations at the same time as the State banking agencies. Both agencies are conducting limited experimental programs to determine if they can rely more on the work of State examiners instead of examining banks independently in those States. We believe that the agencies should expand these programs to as many States as possible. Of course, the quality of State examinations must be taken into consideration in such a program. The agencies' reports of examination were not effectively communicating the examination results to the banks, because: -- Many problems and criticisms were stated in the confidential sections of the reports but not disclosed to the banks. -- The examiners generally did not recommend how the banks could correct the problems. The reports of examination s.hould tell the banks, in a concise and straightforward fashion, the results of the examination and include recommendations for corrective action. - 9 - Many of tne banks in our samples were controlled b-' bank holding companies. While we did not review the Federal Reserve's overall regulation of bank holding companies, we did check on the problems in our sample banks which were We found that 22 of related to holding companies. 344 banks had problems caused by their holding companies. In most of these cases, the holding companies' actions were not uncovered until problems had been identified in the banks. As you are aware, we were limited by the study agreement to reviewing only the supervisory aspects of holding companies which contributed to problems of affiliated banks in our samples. HAVE THE AGENCIES BEEN EFFECTIVE IN GETTING BANKS TO RESOLVE PROBLEMS? I would now like to summarize our views on the agencies' efforts to encourage banks to correct problems. Examiners find problems in virtually all banks; however, some banks have more serious problems and require more supervisory attention than others. From our review of examina- tion reports, we summarized the nature and frequency of problems disclosed in them. Chapter 5 of our report includes tabulations of the problems identified by examiners for various size banks and between agencies. - 10 - The agencies cannot correct the banks' problems themselves bun, they do have several tools to get banks 'o oo-'rect their problems. Earlier I alluded to the methods used by the supervisory agencies to influence banks to solve problems. These include both informal and formal actions. The agencies prefer to use informal methods as much as possible to persuade bank managers to take; corrective action. These include: -- discussing the problems with bank managers; -- requiring the banks to submit progress reports on corrective actions taken, -- visiting the banks to see if progress is being made, and -- meeting with the banks' boards of dirsctors to make sure they are aware of the problems. We believe the success of the supervision process depends heavily on how results of bank examinations are communicated to the boards of directors of the banks. We found that the agencies generally did not meet with the boards. In a general sample of 600 banks, we found that examiners met with boards of directors in less than 10 percent of the cases we studied'. Even when banks had major problems, examiners met with the boards - 11 - of directors in only about half the cases. We believe that the agencies should discuss the results of their examinations with the boards of directors or with the directors' audit or examining committees. When a bank's managers do not take corrective action in reponse to the agencies' informal methods, the agencites have several formal actions available to them. -- The Comptroller of the Currency can revoke a bank s charter. -- The Federal Reserve can expel a member bank. -- FDIC can terminate a bank's deposit insurance. -- All three agencies can enter into written agreements with banks, requiring that certain corrective actions actions be taken. -- All three agsncies can issue cease and desist orders. -- All three can initiate efforts to remove or suspend bank officials, but the Comptroller of the Currency must rely on the Federal Reserve to conduct hearings and present evidence. Our analysis of enforcement actions taken by tne supervisory agencies for the banks included in our samples showed that informal actions were used most of the time and that - 12 - Even though the same types formal actions were seldom used. of problems existed from one examination to another, the agencies often did not change the type of en orcement actions used or intensify the use of an enforcement acticn to get the problems corrected. made the agenQies For example, from 1971 through 1975 limited use of written agreements and desist orders--probably their most effective the Federal used written agreements 3 times, and the Comptroller of the Currency 48 desist orders were used by FDIC 38 Reserve 5 times, 1976, and by the Comptroller 13 tools. FDIC Reserve 8 times, times. times, and cease Cease and by the Federal times. During the agencies were taking a tougher line with the banks and began using their legal enforcement power more frequently. All of us have read a great deal the agencies' lists of problem banks. in recent months about In our study, we analyzed those lists in detail to see how long banks remained in problem status and how the agencies dealt with those banks. During the 5-year period ending December 31. 1975, a total of 1,532 commercial banks were on the agencies' problem bank lists. Fifty-five percent of those banks were returned to nonprohbem status by December - 13 - 31, 1975. Although most of the banks returned to nonproblem status in 2 years or less, 24 percent remailed problem banks over 2 years. We facr'i that some banks were considered to be problems for longer than 5 years. We believe that the supervisory agencies should have used their formal enforcement powers more frequently when dealing with these banks, and that they should establish guidelines for the types and magnitudes of problems where formal actions could be taken. The supervisory agencies have requested additional statutory authority to remove a bank official whose acts stem from either personal dishonesty or gross negligence and to azsess civil penalties against banks and/or individual officers for specific violations. Our study of failed and problem banks showed that these powers could have been helpful in dealing with the officials of those banks. We would, therefore, support legislation giving the agencies this authority. PROGRESS MADE IN THE PAST YEAR TO IMPROVE BANK SUPERVISION I would like to comment at this time on the major improvements made by the agencies during 1976 in several areas of bank supervision. The most significant - 14 - improvements which I would like to discuss with you today were those related to the bank examination process. All three agencies revised their examination approaches to give greater priority to examining the weakest banks and less emphasis to examining the relatively trouble-free banks. The Federal Reserve revised its examination policies in March 1976, to provide some flexibility to their examiners to concentrate on banks with problems. In January of this year the Federal Deposit Insurance Corporation adopted a new examination policy to provide more flexibility to schedule and scope examinations based on bank soundness and the quality of policies and controls. The Comptroller of the Currency has developed detailed examination procedures which place greater emphasis on early identification of weaknesses in bank policies, practices, procedures, controls, and audit. If the Comptroller can effectively influence the banks to correct these weaknesses promptly, many of the types of problems now being disclosed bfy the traditional examirnation approach may be prevented or, if they occur, corrected before they develop to the point of seriously threatening the soundness of the bank. - 14a - The new procedures were incorporated into a new manual of examination procedures and were fiell tested at 10 banks by mid-1976. OCC began phasing in tne new approach in the Fall of 1976 and expects to complete the transition by mid-1977. In our view, the most important facet of OCC's new examination procedures is that they will center more on identifying the underlying causes of problems rather than on the results of operations. The traditional examination has focused primarily on identifying poor results of operations such as bad loans, concentrations of credit, excessive insider loans, risky investments, inadequate capital, inadequate liquidity, and violations of laws. Under the traditional examination approach examiners were instructed to examine and evaluate bank policies, controls, and audit, but were provided little or no detailed guidance on how deeply they should examine these areas or how they should document their work and support their conclusions. As a result, many examiners had developed their own informal examination procedures, which differed from examiner to examiner' and from bank to bank. The oew procedures are intended to provide greater assurance that indepth analysis of policies, practices, procedures, controls, and audit would be made during each - 15 - examination. Additionally, it provides documentation of examination procedures followed, tests performed, information obtained, and conclusions reached. This documentation can assist the examiner-in-charge in Judging the overall condition of the bank and in planning subsequent examinations. Neither we nor the agency were able to fully evaluate the practical problems that may be encountered in implementing the new procedures, such as the resource impli itions and the usefulness of the procedures to all types of banks. Undoubtedly, many practical problems will be encountered and further refinement of the process will be necessary. But we feel that this new approach can be a big step forward and the three agencies should Jointly test and evaluate the approach. THE WORKING RELATIONSHIP AMONG THE FEDERAL BANK REGULATORY AGENCIES How well the three bank regulatory agencies work together has been one area of concern to your Subcommittees and we have several observations in this area. The legislation establishing the three agencies created several overlaps in authority. However, the Federal agencies do not examine the same banks. The Federal Reserve could, but does not, examine banks examined - 16 - by the Comptroller, and FDIC could, but does not, examine banks that are examined by the other two agencies. We recognize that each agency has been granted certain authority by the Congress ani that each enjoys considerable independence of action. Nevertheless, from an overall Fed- eral viewpoint it is important that the agencies work closely together to promote efficient operation and insure that banks in similar circumstances be treated uniformly regardless of which ager2y is their primary supervisor. We found that some coordination occurs between the agencies through formal and informal means. An interagency coordinating committee was established at President Johnson's request in 1965 to resolve conflicting rules, regulations, and policies. It includes representatives of each of these three agencies, as well as a representative of the Federal Home Loan Bank Board. During the past two years the committee has met 17 times. The coordinating committee provides a firum for exchanging information about possible conflicting rules, regulations, or policies which might exist between the agencies. However, it does not provide a mechanism for the three agencies to combine their forces in undertaking significant new initiatives to improve the bank supervisory process or in resolving problems common to the three agencies. - 17 - Coordination :.lso occurs through meetings and discussions with senior management at the three agencies. In addition, the Comptroller of the Currency is by law a member of the FDIC Board of Directors and thus has direct involvement with that agency. However, we could not ascertain the full extent of coordination and cooperation among the three agencies because such efforts ire mostly undocumented. For example, no minutes are taken at the coordinating committee meetings and few records are maintained of telephone conversations and informal discusssions between the staffs of the three agencies. In our report we identified several areas where the agencies could benefit by sharing experiences about innovations in bank supervision and undertaking activities jointly or on a reciprocal basis. For example, in the fall of 1975, OCC Degan developing its new examination procedures which were field tested in mid-1976. The three agencies did not work together in developing and field testing the new procedures. It was not until November 1976 that OCC met with the other agencies to present in any detail its new approach. When one agency plans major changes in its activities which may be applicable to the other agencies, early consultation and exchange of views would benefit all agencies concerned. We believe that the three agencies should Jointly participate in developing and testing the new approach. - 18 - We believe that a better mechanism is needed to insure effective interagency coordination. We believe that the Congress should enact legislation establishing such a mechanism and give consideration to identifying those areas where it feels effective interagency coordination is essential. WHAT DO BANKERS THINK OF BANK SUPERVISION? We sent a questionnaire to more than 1,600 commercial bankers, of which about 90 percent responded, A copy of the questionnaire and a summary of the responses are included as an appendix of our report. The bankers indicated that they endorse Government intervention in the banking industry. Almost 90 percent felt that "elimination of bank regulation entirely" woulA be, to some degree, "detrimental." Other aspects of Government intervention received similar endorsements. For example -- 70 percent felt eliminating Federal chartering would be detrimental, --72 percent felt eliminating State chartering would be detrimental, and -- 88 percent felt eliminating bank examinations would be detrimental. - 19 - We also asked bankers whether they supported or opposed the current regulatory system of three Federal agencies together with State supervision. A majority (58 percent) indicated that they supported the pres3nt system. We also asked for their opinion on three possible alternatives to the present system. Of the three, the most favored alternative consists of one Federal agency with continued State supervision. The two alternatives which did not include State involvement were opposed by large majorities. As a group the responding bankers ha, a generally favorable opinion of Federal bank examiners. For example, we asked bankers to rate the competence of the senior Federal examiners in 10 areas covered by the examination. In all 10 areas the examiners' competence was rated very favorably. For instance, in the area of determining the quality of loans -- 28 percent said competence was "more than adequate"; --66 percent said it was "adequate"; --5 percent said it was "borderline"; and --1 percent said it was "inadequate" or "very inadequate." The pattern of responses was similar for the other nine areas. - 20 - I have only discussed the principal message this morning. The report also comments on other aspects of bank supervision such as chartering new national banks and maintaining examiner competence and independence. attached to my in our report statement a list of ail I have the recommendations in our report. This concludes my statement, Mr. Cha4rmen. tions about our study If you have ques- I will be happy to try to answer them. - 21 - GAO RECOMMENDATIONS TO IMPROVE BANK SUPERVISION Chartering national banks GAO recommends that the Comptroller of the Currency (1) develop more definitive criteria for evaluating charter applications and (2) thoroughly document the decisionmaking process, including an identification by reviewers of each factor as favorable or unfavorable. (See p. 2-26.) Scheduling bank examinations GAO recommends that the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller of the Currency establish scheduling policies and procedures which would avoid setting examination patterns. (See p. 4-7.) GAO recommends that the Board of Directors, FDIC,and the Board of Governors, FRS adopt flexible policies for examination frequency which would allow them to concentrate their efforts on banks with known serious problems. (See p. 4-9.) GAO recommends that the Congress amend the National Bank Act to allow the Comptroller of the Currency to examine national banks at his/her discretion. We would be glad to assist the committees in drafting appropriate legislation. (See p. 4-9.) Determining the scope of bank examinations GAO recommends that the Board of Directors, FDIC,and the Board of Governors. FRS, establish procedures to base the scope of each examination on the examiners' evaluation of the quality of the bank's controls, policies, procedures, and audit. (See p. 4-17.) GAO recommends that the Board of Directors, FDIC, and the Board of Governors, FRS, extend their current efforts to use State examinations and, if they do, GAO also recommends that they -- develop minimum standards for acceptable State examiner training and examination procedures and --use only reports of State examinations meeting those standards. (See p. 4-13.) Bank examination procedures GAO recommends that the Board of Governors, FRS, and the Comptroller of the Currency, using all available information, develop and use a single approach to classify loans subject to country risk. (See p. 4-33.) GAO recommends that the Board of Governors, FRS, and the ComF-troller of the Currency implement procedures to examine (where permitted by the country involved) major foreign branches and subsidiaries, including subsidiaries of Edge Act corporations, periodically and whenever adequate information about their activities is not available at the home office. (See p. 4-35.) GAO recommends that the Board of Governors, FRS, and the Comptroller of the Currency utilize each others examiners to cut expenses when conducting examinations in foreign countries. (See p. 4-35.) GAO recommend. that the Board of Governors, FRS, implement a system of supervision which is based on onsite inspections of holding companies and their major nonbanking subsidiaries. We also recommend that the Board strengthen iLs oversight of holding company supervision by extablishing -- a systemwide manual of inspection procedures, -- a standard inspection report, and -- periodic onsite evaluations of Reserve bank supervisory activities. (See p. 4-51.) GAO recommends that the Board of Directors, FDIC, and the Board of Governors, FRS, develop standards for the preparation, maintenance, and use of examination workpapers. (See p. 4-19.) Communicating examination results GAO recommends that the Board of Directors, FDIC, and the Board of Governors, FRS, require their examiners to meet with the bank's board of directors or audit or examining committee aEter each examination. (See p. 6-5.) GAO recommends that the Board of Directors, FDIC, and the b-dad of Governors, FRS, develop and use reports of examination which provide the banks with the results of the examination (See p. 6-13.) and any necessary supporting information. GAO recommends that the Board of Directors, FDIC, and the Board of Governors, FRS, develop reports of examination for EDP operations which present the problems found, corrective action needed and any necessary explanatory data in a clear (See p. 4-'9.) and concise manner. Encouraging banks to correct problems GAO recommends that the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller of the Currency establish more aggressive policies for using formal actions. Written guidelines should be developed to identify the types and magnitude of problems that formal actions could appropriately correct. (See p. 8-18.) GAO recommends that the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller cf the Currency develop uniform criteria for identifying problem banks. (See p. 8-49.) Examiner capability and independence GAO recommends that where feasible the Comptroller of the Currency,'the Board of Directors, FDIC, and the Board of Governors, FRS, combine their examiner schools and standardize their curriculums. (See p. 10-6.) GAO recommends that the Board of Governors, FRS, (1) establish a full-time training office to operate its exa.miner training program and (2) carry out the revision of examiner school curriculums which it has recognized as needed for sometime. (See p. 10-11.) - 3- GAO Board of increase by their recommends that the Comptroller of the Currency, the Directors, FDIC, and the Board of Governors, FRS, their training in EDP, law, and accounting, as desired (See p. 10-11.) examiners. GAO recommends thai: the Board of Governors, FRS, also establish formal evaluation process to measure the competence (See p. of persons seeking advancement to examiner status. 10-15.) Improving interagency cooperation GAO recommends that either (1) the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller of the Currency jointly establish a more effective mechanism to combine their forces in undertaking significant initiatives to improve the bank supervisory process or in attacking and resolving common problems, or (2) the Congress enact legislation to establish a mechanism for more effective coordination. We would be glad to assist the committees in drafting appropriate legislation. GAO recommends that the Comptroller of the Currency invite FDIC and FRS to jointly evaluate its new examination approach. We further recommend that, in the event of a favorable assessment of the new process, the Board of Directors, FDIC, and the Board of Governors, FRS, revise their examination processes (See p. 7-25.) to incorporate the concepts of OCC's approach. GAO recommends that the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller of the Currency jointly staff a group to analyze shared national credits at State and national lead banks under Federal supervision and that the three agencies use the uniform classification of these loans when they examine the participating banks. (See p. 7-25.) GAO recommends that the Board of Directors, FDIC, the Board of Governors, FRS, and the Comptroller of the Currency work together to refine their monitoring systems and their approaches to examining for compliance with consumer credit (See p. 7-25.) laws. -4-
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