Bank Examination for Country Risk and International Lending

GAO assessed major aspects of the U.S. bank regulatory authorities' uniform examination system for evaluating and commenting on country risk to U.S. banks with relatively large foreign lendings. The system consists of identifying countries with actual or potential loan repayment problems, calling these loans to the attention of bank management, and evaluating bank internal country exposure management systems.

GAO found that the system's special comments concerning bank exposure and repayment problems have not been clearly communicated to bankers. The system has been effective in identifying countries with actual or imminent payments arrearages. However, many other countries are needlessly identified as having potential debt-servicing problems. If this continues, it could unduly inhibit international lending or increase its costs. Furthermore, although the system's examining practices are generally uniform, there are areas where inconsistencies are evident. The Office of the Comptroller of the Currency and Federal Reserve examiners address the key elements of bank country exposure management systems for most of the banks which they review, but the Federal Deposit Insurance Corporation examiners do so less frequently. GAO also found that documentation could be much improved. It appears that most banks with larger exposures have adequate bank country exposure management systems. However, for most banks with smaller exposures, lack of information in examination materials precludes an adequate evaluation system. It appears that special comments by bank examiners have had little impact on restraining the growth of bank exposures. GAO could not gauge the impact of the program on improving the systems of individual banks because of incomplete information. However, it is likely that bank systems would be enhanced if they were reviewed more often.

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: Allan I. Mendelowitz Team: General Accounting Office: International Division Phone: (202) 512-4812