Summary

GAO reviewed the compliance of the Inspector General (IG) offices at the Federal Reserve, Federal Deposit Insurance Corporation, and the Treasury Department with the requirement that they issue reports on banks or thrifts whose failures result in "material losses"--those that exceed $25 million--to the deposit insurance funds. IGs are required to determine why the problems of a bank or thrift results in a material loss to a deposit insurance fund and to make recommendations for preventing such losses in the future. This report (1) assesses the adequacy of the preparation, procedures, and audit guidelines that IGs have established for performing material loss reviews to ensure compliance with their responsibilities under the Federal Deposit Insurance Act; (2) verifies the information contained in the material loss review reports upon which the IGs based their conclusions; (3) recommends improvements in bank supervision on the basis of a review of material loss review reports issued between July 1993 and June 1994; and (4) assesses the economy and efficiency of the current material loss review process.

GAO found that the IG reviewed have satisfied their MLR responsibilities by: (1) establishing a statement of understanding that coordinates their performance of MLR; (2) initiating and completing several pilot studies; (3) hiring staff with bank and audit experience; and (4) developing relevant training programs and comprehensive audit guidelines. In addition, GAO found that: (1) if MLR guidelines are implemented correctly, they will be adequate to determine the causes of bank failures and the quality of bank supervision; (2) the costs associated with producing MLR reports can be considerable and may cause temporary operational disruptions to IG offices; and (3) MLR requirements do not always give IG sufficient time to review reports prepared by other Federal Deposit Insurance Corporation (FDIC) officials who investigated causes of bank failures.