Federal Reserve Could Improve the Efficiency of Bank Holding Company Inspections

GAO reviewed the Federal Reserve's bank holding company supervision program. The report was done because the number of bank holding companies has grown rapidly, and the Federal Reserve has made a number of changes to improve its supervision and accommodate the increasing workload. GAO wanted to determine whether further revisions in holding company inspection procedures were needed.

GAO found indications that certain operating characteristics of bank holding companies were related to the degree of risk to which the company might be exposed. The risk seemed particularly high if the holding company had credit-extending nonbank activities. GAO found that the Federal Reserve may not be adequately addressing this risk in determining: (1) what information holding companies should be required to report to permit effective monitoring and inspection of these activities; (2) when to make inspections because of potential problems; and (3) how much examination coverage should be given to these activities. Moreover, GAO found that in some districts more information and expertise may be needed to properly evaluate nonbank activities. GAO also found that more flexibility was needed in the Federal Reserve's holding company supervision policy. In addition, the Federal Reserve Bank needs to exercise more control over surveillance actions taken by district banks. Finally, GAO believes that the Federal Reserve could further increase the efficiency of onsite inspections by relying on bank examiners to obtain needed bank holding company data during subsidiary bank examinations.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Craig A. Simmons Team: General Accounting Office: General Government Division Phone: (202) 512-8678