	Bank Oversight: Fundamental Principles for Modernizing the U.S. Structure

Mr. Chairman and Members of the Committee: We are pleased to be here today to discuss your efforts to modernize the federal bank oversight structure. Specifically, we believe that structural reform should provide for more consolidated and comprehensive oversight of companies owning federally insured banks and thrifts, with coordinated functional regulation and supervision of individual components; independence from undue political pressure, balanced by appropriate accountability and adequate congressional oversight; consistent rules, consistently applied for similar activities; and finally, enhanced efficiency and reduced regulatory burden. Each of the five foreign oversight structures we studied reflects an unique history, culture, and banking industry, and as a result, no two of the five are identical. Furthermore, all of the countries we reviewed had more concentrated banking industries than does the United States, and all but Japan have authorized their banks to conduct broad securities and insurance activities in some manner. Although we did not attempt to assess the effectiveness of bank oversight in these countries, we found that each reflected these four principles in some way, and with few, if any, exceptions, each had fewer national agencies involved with bank regulation and supervision than is the case in the United States; had substantial oversight roles for their central banks, and ensured that their ministries of finance were, at the least, kept informed of important industry and supervisory developments; had relatively narrow roles for their deposit insurers; and lastly, incorporated mechanisms and procedures to ensure consistent, consolidated oversight and limit regulatory burden. In each of the five countries, the national government recognized that it had the ultimate responsibility to maintain public confidence and stability in the financial system. While each country included its central bank and finance ministry in some capacity in its oversight structure, most also recognized the need to guard against undue political influence by incorporating checks and balances unique to each country. 2. 4.
Why GAO Did This Study

GAO discussed efforts to modernize the U.S. federal bank oversight structure, focusing on: (1) how the U.S. oversight structure compares with five other industrialized countries; and (2) whether these countries' structures can be used to assist U.S. reform.

What GAO Found

GAO noted that: (1) U.S. structural reform should include a more consolidated and comprehensive oversight of companies owning federally insured banks and thrifts, independence from undue political pressure, appropriate accountability and adequate congressional oversight, consistent rules, and enhanced efficiency and reduced regulatory burden; (2) the five countries have oversight structures that are diverse, banking industries that are more concentrated than in the U.S., and banks that are authorized to conduct broad securities and insurance activities; (3) in each of the five countries, there are no more than two national agencies involved in oversight operations; (4) each country was heavily involved in bank oversight and ensured that its ministry of finance was informed of important industry and supervisory developments; (5) the countries' oversight structures have systems of checks and balances to guard against political pressure and maintain the public trust and stability in its financial system; (6) each country has given deposit insurers limited roles and viewed them as primarily a source of funding for bank failures; (7) the oversight structures incorporate mechanisms to ensure consistent oversight and limited regulatory burden; and (8) there are a number of ways that the U.S. can simplify its bank oversight structure.