GAO identified deficiencies in the FDIC's policies designed to address the risks of "regulatory capture." GAO defined the term "as a regulator acting in the interest of the regulated industry rather than in the public interest." In the report, GAO recommended enhancements to the FDIC's supervision of such risk.
GAO reviewed issues of transparency and accountability in the bank examination process, potential conflicts of interest among examination staff and the risks of compromised independence. GAO found several weaknesses in FDIC processes. Among others, GAO found that the FDIC failed to (i) implement certain bank examinations in a manner consistent with the FDIC's own policies and (ii) implement a process for identifying the appropriate time to review the work papers of departing examiners who have accepted employment with regulated entities to ensure the independence of those examiners.
GAO recommended that the FDIC improve its policies to better address regulatory capture by:
- collecting information about the future employment of departing examiners;
- implementing policies requiring high-level managers to review case managers' documentation describing whether banks have fully addressed Matters Requiring Board Attention;
- revising examination documentation retention policies, such that retention periods are increased beyond one examination cycle for certain banks with "satisfactory or better" composite ratings; and
- requiring case managers to document in their scoping plans how high-risk areas were considered by examination teams where such areas were not addressed in related examination reports.
Primary Sources
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.