The Board is a federal agency, responsible for  maintaining the stability of financial markets, supervising financial and  bank holding companies and state-chartered banks that are members of the  Federal Reserve and the U.S. operations of foreign banking organizations,  and overseeing the operations of the Reserve Banks. The report identified areas that had potential for reducing  the Federal Reserve’s costs. Since 1996, the Federal Reserve has consolidated the management of the  services provided by the individual Reserve Banks, particularly payment  services. For example, payment system products and new technologies are  now managed on a systemwide basis. Federal Reserve officials explained  that many of their initiatives have the effect of consolidating functions of  the Federal Reserve without consolidating the 12 Reserve Banks. The Federal Reserve has taken or begun a number of actions in response to  the findings and recommendations in our 1996 report. The Federal Reserve  has continued to engage in its benchmarking process. The Federal Reserve Has Continued Its Policy of Not Charging for Bank Examinations

Our 1996 report noted that the Federal Reserve’s revenues, and hence its  return to the taxpayers, would be enhanced by charging fees for bank  examinations. While we continue to believe  that a strong argument exists for industry funding of federal supervision  and regulation, we also recognize the benefits of the dual banking system. Ultimately, however, it is up to Congress to decide how to fund federal  regulation and to balance the differences among the different bank  regulators.
What GAO Found

In a 1996 report, GAO made a number of recommendations to the Board of Governors of the Federal Reserve System for reducing spending and improving the operations of the Federal Reserve System (Federal Reserve). The Federal Reserve has taken actions responsive to most of the 1996 report's recommendations. The Federal Reserve has retained its structure but has sought to consolidate operations and bring common management practices to the 12 Federal Reserve District Banks. In particular, the Federal Reserve now manages the payment services it provides to banks on a systemwide basis. The Federal Reserve has also changed its budgeting, internal oversight, and cost accounting processes in an effort to increase accountability. It has taken other steps to decrease costs in areas identified by the 1996 report. Specifically, the Reserve Banks have consolidated their purchase of some services, such as prescription drug coverage, to take advantage of volume discounts, rather than continuing with the former practice of each individual Reserve Bank purchasing services separately. The Federal Reserve, however, continues not charging for bank examinations. Federal Reserve officials explained that they continue to believe that charging for bank examinations would tip the current balance against state charter banks, and thus be inconsistent with maintaining the dual banking system of state and nationally charter banks. Although a strong argument exists for industry funding of federal supervision and regulation, GAO recognizes the benefits of the dual banking system. Ultimately, it is up to Congress to decide how to fund federal regulation and to balance the differences among the different bank regulators.