Banks' Securities Activities
Oversight Differs Depending on Activity and Regulator Gao ID: GGD-95-214 September 21, 1995About 22 percent of U.S. banks offered securities brokerage services to their customers in 1994. These activities can provide diversification and additional income for banks, a more competitive securities industry, and added convenience for bank customers. However, because oversight of bank securities activities is split between bank and securities regulators, the potential exists for inconsistent regulation. GAO found that greater cooperation and coordination between regulators would help overcome this problem. This report (1) determines the extent to which banks provide securities brokerage services and how these services are regulated; (2) evaluates the completeness and results of Federal Reserve inspections of bank holding company subsidiaries that the agency authorizes to underwrite and deal in securities; and (3) evaluates the Federal Deposit Insurance Corporation's regulation of bank subsidiaries that can underwrite and deal in securities.
GAO found that: (1) about 22 percent of U.S. banks offered securities brokerage services to their customers in 1994; (2) the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) regulated the securities activities of 88 percent of these 2,400 banks by providing these services through broker dealers, while 287 banks provided bank-direct brokerage services; (3) federal bank regulators did not always review bank-direct brokerage operations routinely, but the regulators jointly issued new guidance and examination procedures in 1994 that emphasized these reviews; (4) securities activities can be overseen by different regulators depending on how the banks organize their securities activities, creating the potential for inconsistent oversight; (5) although Federal Reserve examiners usually met their inspection schedules, addressed inspection procedures, and tested securities subsidiaries for compliance with applicable firewalls, there were a few cases of insufficient documentation; and (6) FDIC had no centralized program to oversee the activities of the bona fide securities subsidiaries and had not fully prepared its examiners to examine securities activities, posing risks to affiliated banks.
RecommendationsOur 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.
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