Federal Supervision of Bank Holding Companies Needs Better, More Formalized Coordination

Bank holding companies control banks with three-fourths of the Nation's assets. In the past holding company affiliations have contributed to some bank failures. Current Federal laws divide the authority for supervising holding companies and their subsidiary banks among three Federal agencies hindering the agencies' abilities to effectively supervise these financial institutions. The Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve supervise different types of banks. The authority to examine and initiate actions in regard to most holding company organizations is divided between at least two of these Federal bank regulatory organizations.

The current legal structure for supervising bank holding companies inhibits Federal agency attempts to treat holding companies and their subsidiaries as a single unit. The rigorous coordination necessary for adequate supervision has not been successfully operated on an informal basis even in routine cases. GAO found that the agencies sometimes took uncoordinated actions against holding companies in trouble which compounded the problems. The Congress established the Federal Financial Institutions Examination Council in 1978 to promote better coordination among the Federal bank regulators. Formal procedures established under the auspices of the Council could improve supervision without having to make more dramatic changes in the Federal supervisory structure.

Recommendations

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