A recent review by the Government Accountability Office found notable variations in how federal banking regulators communicate their supervisory concerns to the institutions they oversee. In a report highlighting the findings, GAO raised concerns that “some communications do not provide complete information that could help boards of directors monitor whether deficiencies are fully addressed by management.”
Specifically, GAO noted that written communications by the Federal Reserve and the FDIC “often lacked complete information for the cause of the concern and, for the Federal Reserve, also lacked information on the potential consequences of the concern, which in one instance led to an incomplete response by an institution.”
GAO also found variation in the agencies’ practices for tracking and using data on supervisory concerns. The report noted that the FDIC and OCC have relatively detailed policies and procedures for escalating supervisory concerns to enforcement actions but found the Federal Reserve to be lacking in this area. The government watchdog observed that the Fed’s dependence on the judgment and experience of its examiners, exam management teams and Federal Reserve staff “can result in inconsistent escalation practices.”
GAO made specific recommendations for both the FDIC and Federal Reserve to update their policies and procedures regarding the collection and use of supervisory information.