Ensuring a safe and sound banking system

The current financial crisis has made the task of ensuring a safe and sound banking system more important and more difficult. Recent events including the collapse of the investment bank model have resulted in banking regulators having to regulate and supervise larger, more complex institutions. Moreover, the ongoing financial crisis has also led to an increase in the number of bank failures raising questions about the stability of the deposit insurance fund.

^ Back to topWhat Needs to Be Done

While the actions of the federal financial regulatory agencies in response to today's financial crisis necessarily have proceeded with urgency, there are a number of ongoing issues that will have to be addressed to ensure the continued safety and soundness of the banking system. GAO has a number of planned and ongoing engagements that should provide useful insights and perspectives about these issues going forward, including ongoing and planned work on Treasury's decision to authorize FDIC to guarantee transaction accounts and certain types of preferred debt, regulation of complex financial instruments, and examining the effectiveness of risk management systems. Moreover, as the financial auditor of FDIC, GAO will render an opinion on the financial statements of the Corporation and deposit insurance fund. Ensuring a safe and sound banking system should include

• Evaluating the implementation of the new Basel II framework for capital adequacy regulation, while ensuring its relevance and applicability to the industry structure that is now emerging,

  Highlights of GAO-07-253 (PDF)

• Assessing the current risk-based examination process to ensure that risks are being appropriately identified and that the risks being examined reflect those that are the greatest threat to the stability of the financial system,

  Full Report of GAO/GGD-00-48 (PDF, 59 pages)

• Ensuring that bank regulators balance institutional safety and soundness while considering systemic risks from entities and products not subject to direct regulation

GAO plans to issue work in the coming months that should provide additional information and insights about the banking system and its regulators including work on FDIC's new guarantee activities and the results of the FDIC financial audit among others.

^ Back to topKey Reports

Deposit Insurance: Assessment of Regulators' Use of Prompt Corrective Action Provisions and FDIC's New Deposit Insurance System

GAO-07-242, February 15, 2007

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 68 pages)   Accessible Text

Federal Deposit Insurance Corporation: Human Capital and Risk Assessment Programs Appear Sound, but Evaluations of Their Effectiveness Should Be Improved

GAO-07-255, February 15, 2007

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 71 pages)   Accessible Text   Recommendations (HTML)

Risk-Based Capital: Bank Regulators Need to Improve Transparency and Overcome Impediments to Finalizing the Proposed Basel II Framework

GAO-07-253, February 15, 2007

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 109 pages)   Accessible Text   Recommendations (HTML)

Risk-Focused Bank Examinations: Regulators of Large Banking Organizations Face Challenges

GGD-00-48, January 24, 2000

Summary (HTML)   Full Report (PDF, 64 pages)