GAO's Attempt to Use LAMIS Database to
Identify the Extent of Insider Lending at
Failed Banks

the resources needed to develop insider databases for the nearly 300 failures in our universe of matches was prohibitive.

In addition to the resources involved, we were concerned about the accuracy and completeness of the data produced by the matches. Unlike Madison, where we had data on the extent of insider lending identified before the bank failed, we had no measure by which to gauge the success of these matches. Further, as we noted earlier in this section, the percentage of a bank's loan portfolio that is captured on LAMIS varies from bank to bank. This variation makes it impossible to obtain complete data on the extent of insider lending for all failed banks.

Given all these impediments and our concern about the accuracy of the results, we decided to expand the match to only nine other failed banks. These banks were selected on the basis of (1) an assessment by our regional office staff on the extent to which documents held by FDIC provided complete information on a bank's insiders and their related interests, (2) the number of borrowers listed on LAMIS for each bank, and (3) geographic distribution. The results from the matches for all 10 banks are provided in table IV.1.

Appendix V

State Laws and Regulations That Govern
Insider Activities

Some State Banking
Laws Are More
Stringent Than
Regulation O

In addition to Federal Reserve Regulation O, state laws and regulations govern insider activities for state-chartered banks. By surveying state banking laws and regulations governing insider activity, we found that the majority of states have banking laws comparable to Regulation O. However, some states have laws that are more stringent than Regulation O concerning the definition of insiders, preferential terms, lending limits, prior board of directors approval, and overdrafts.

We obtained information on state banking laws and regulations from
almost all of the states through a survey we made with the cooperation of
the Conference of State Bank Supervisors. We also conducted in-depth
interviews with officials from state banking departments in 10 states to
obtain information on the examination policies and procedures they used
to detect insider activity. From these interviews, we found that a few state
banking agencies consistently included a review for insider activity in their
examinations of state-chartered banks. Two state banking agency officials
told us they incorporate a review of insider activity on a periodic, or
as-needed, basis. One state, Texas, has developed, implemented, and
incorporated examination modules to specifically evaluate the
effectiveness of bank management.

Regulation O places certain restrictions on loans to insiders that are applicable to all federally insured state banks. In addition, on the basis of responses we received from our survey of state banking agencies regarding the comparison of their banking laws and regulations to Regulation O, we found that 12 of the 50 states and territories that responded to our survey have state banking laws and regulations about insiders with some provisions that are more stringent than Regulation O. Prior board of directors approval and the overall lending limits were the two provisions that we most often found to be more stringent than the corresponding provisions outlined in Regulation O.

For example, Kansas banking law requires that any insider loans to bank officers resulting in total liability of the officer to the bank of over $10,000 receive prior approval from a bank's board of directors. Regulation O stipulates that any insider loans which when aggregated with all other extensions of credit to an insider exceed 5 percent of a bank's unimpaired capital and unimpaired surplus or $25,000, whichever is greater, must be approved in advance by the board of directors. In addition, Kansas appears to have more stringent provisions on lending limits to insiders with a