GAO banking regulation review finds gaps in outdated rule checks
The GAO said bank regulators lack documented processes to identify outdated rules, raising doubts about a 1996 burden-reduction mandate.
By Rafael Ortiz · Fintech Correspondent
· 3 min read
A GAO banking regulation review found that federal bank supervisors lack documented procedures for identifying rules that may be outdated, unnecessary or excessively burdensome. The finding leaves unclear whether a nearly 30-year-old congressional effort to reduce regulatory burden has delivered measurable results, according to the Government Accountability Office.
Congress passed the Economic Growth and Regulatory Paperwork Reduction Act in 1996 to require banking agencies to review their regulations and address unnecessary burden. In a recent report, the GAO said the agencies’ current approach makes it hard to determine whether those reviews are producing effective changes.
The report focused on the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The GAO said those agencies do not have documented steps for deciding how to identify outdated or unnecessary regulations, or how to determine whether comments and issues raised during reviews require action.
What did the GAO banking regulation review find?
The GAO said bank regulators have not adopted practices for ranking which regulations deserve closer analysis. It also said the agencies have not established ways to assess the combined burden created when multiple rules apply to the same regulated firms.
Without those practices, the agencies may fail to focus consistently on the most consequential issues, weigh regulatory costs and benefits, or understand the cumulative effect of rules on banks and other supervised entities, the GAO said.
The report said documented procedures and established practices would improve the chance that the reviews reduce burden in a meaningful way. The GAO recommended that the heads of the Federal Reserve, FDIC and OCC create and apply documented processes for finding regulations that are outdated, unnecessary or unduly burdensome, and for addressing them during the EGRPRA review process.
EGRPRA reviews are intended to give regulators a formal channel to reassess older rules. In practice, the process depends on how agencies collect issues, decide which ones merit attention and determine whether a rule should be retained, revised or removed. The GAO’s finding is that those steps are not sufficiently documented across the banking agencies it reviewed.
Bank rule changes are also under debate in Congress and at the Fed
The GAO report comes as banking regulation is under scrutiny in other areas. The Federal Reserve said earlier this month that it plans to amend requirements for bank anti-money laundering programs. According to the central bank, the changes would require lenders to focus more closely on higher-risk customers and activities and to incorporate Financial Crimes Enforcement Network anti-money laundering priorities into their risk assessment procedures.
The Fed also said it plans to direct its supervision and enforcement toward significant failures by banks to implement their own anti-money laundering programs.
Separately, the House voted last week to approve the Main Street Capital Access Act, a bill intended to reduce or modify regulations for smaller banks. The banking industry supported the measure, while a group of 28 labor, community, consumer and public interest advocacy organizations opposed it.
In a letter to lawmakers before the vote, the advocacy groups argued that the bill treats bank rules as burdens to be reduced rather than safeguards against systemic risk, bank failures, publicly financed bailouts and discriminatory or predatory lending practices.
This story draws on original reporting from PYMNTS.
