Imágenes de páginas
PDF
EPUB

Objectives, Scope, and Methodology

We did our work on the failed banks in Washington, D.C., and the 14
FDIC-DOL Consolidated field offices located in Irvine and San Jose,
California; Denver, Colorado; East Hartford, Connecticut; Orlando,
Florida; Atlanta, Georgia; O'Hare (Rosemont), Illinois; Bossier City,
Louisiana; Franklin, Massachusetts; South Brunswick, New Jersey;
Oklahoma City, Oklahoma; and Addison, Houston, and San Antonio,
Texas.

We also reviewed a judgmentally selected sample of 13 open banks. Our objectives were to determine whether the same types of insider and management problems we found in the failed banks were also present in open banks. The 13 banks included banks supervised by all 3 federal bank regulators and were located in various geographic parts of the country. We selected only banks with a composite CAMEL rating of 3 or better because we did not want to purposely select banks with a higher likelihood of having problems. In addition, we did not want to select banks where the level of regulatory activity might be higher and our presence at the regulatory agency might impede the supervisory process. All of the 13 banks we selected had recent federal bank examinations. We used this criterion because we wanted to interview the current examiner in charge about the history and most current conditions at the banks.

For each bank, we prepared a case study in which we focused on the efforts of the federal regulators to review insider and management problems. We collected information on insider activities as defined by Regulation O, affiliate transactions, and the efforts of management and the bank's board to operate and manage the bank with due care. We also collected general financial information and some bank history for each bank. We used examination reports for the 5 years prior to our review, available financial information, and bank publications obtained by the examiners. Finally, we conducted in-depth interviews with the examiner in charge of the most recent federal bank examination.

We did our work on open banks at FDIC, OCC, and the Federal Reserve headquarters in Washington, D.C., and at the FDIC field offices in New York and Syracuse, New York; Rolling Meadows and Burr Ridge, Illinois; and San Francisco, California; at the occ field offices in Great Neck and New York, New York; Bensalem, Pennsylvania; Rockford and Chicago, Illinois; and Evansville, Indiana; and at the Federal Reserve banks in Philadelphia, Pennsylvania, and San Francisco, California. We discuss the overall results of our work on insider and management problems in failed and open banks in chapters 2 and 3.

Objectives, Scope, and Methodology

To determine the underlying causes of insider problems, we conducted focus groups and interviews with bank directors. We also collected information on training opportunities for bank directors. Additional information on our interviews and focus groups with bank directors and training for bank directors follows.

The analysis of our results from the failed and open bank work led us to consider further the key role played by the board of directors in ensuring that a bank is managed properly, that problems requiring correction receive attention, and that insider problems do not occur. As a result, we decided to obtain additional information directly from bank directors. We used two approaches to do this. First, we met with four boards of directors of the open banks we reviewed who were willing to meet with us. Second, we conducted six focus groups with randomly selected bank board members from a variety of large and small banks in the Washington, D.C., New York, and Chicago metropolitan areas. With both the full bank boards and the focus groups we discussed the following general issues:

⚫ the roles and responsibilities of bank directors;

⚫ how directors actually discharge their duties;

⚫ how the regulators work with board members and management to ensure the safe and sound operation of a bank;

⚫ the effects of recent legislative and regulatory changes (most notably the

[ocr errors]
[ocr errors][merged small][merged small][merged small]

Evidence from our failed bank work indicated that in some cases bank directors had little knowledge about their duties and responsibilities or had received little training regarding their corporate governance responsibilities. In our meetings with the directors of the open banks and our focus groups bank directors also said they had received little training when they accepted invitations to become board members, and some of them expressed concerns about their ability to keep up with rapidly changing banking laws, regulations, and regulatory directives. As a result

Objectives, Scope, and Methodology

of the directors' comments, we decided to obtain information on the nature and types of educational programs available for directors.

To do the work for this objective, we interviewed officials of federal and state bank regulatory agencies, insurance companies that supply banks with D&O insurance coverage, bank trade associations, and private sector firms involved in the banking industry. We interviewed these officials to collect information on how they inform or educate bank directors on corporate governance responsibilities or other aspects of banking. When available, we reviewed the educational materials, such as pamphlets and handbooks, supplied to directors. We also reviewed the educational materials used in various conferences, seminars, and workshops held for bank directors. We discuss the results of this work in chapter 6.

We did this work in Washington, D.C. We also obtained information to satisfy this objective at various state banking agencies we visited (see objective 4 for specific locations).

Our fourth objective was to determine the overall extent of loans to insiders at failed and open banks. One section of part II of the DCI required the GAO evaluator to develop an extensive list of insiders officers, board members, major shareholders, and their related interests-using all of the available documents at the DOL office. These documents include examination reports and enforcement actions, investigative files, and asset searches ordered by investigators. In some cases, investigators had developed lists that we supplemented with other available information; in others, we had to do much more extensive research to develop these lists. We developed these lists to match the names on them against those on the loans of DOL's Liquidation Asset Management Information System (LAMIS) database. Using these matches along with additional matches with other databases-principally pools of loans being managed by servicers for FDIC -we expected to be able to estimate the amount, at a minimum, of loans to insiders; the amounts charged off, or lost; and the amounts that could be lost (i.e., loans to insiders that were classified as substandard or doubtful). We tried to compile a list of loans to insiders and their related interests that may have resulted in losses to Bank Insurance Fund. Because of difficulties we encountered in using the LAMIS database for these purposes, we alternatively decided to attempt to match our loan lists to LAMIS data for 10 selected failed banks. We selected these banks on the basis of the availability of insider-related data, asset size, and geographical location. We discuss the results of our work in chapter 4 and appendix IV.

Objectives, Scope, and Methodology

For open banks, we relied on data available in call reports to determine the total amount of insider lending in open banks. We used the most recently reported call report data, dated March 1993.

In his request letter, Chairman Gonzalez specified 10 states whose banking laws and regulations he wanted us to review. These states were California, Florida, Illinois, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and Texas. For our fifth objective, to compare state banking laws with Regulation O, we requested information on the state laws and regulations regarding insider activities, state examination procedures for reviewing these activities, and any special programs for review of insider activities at banks or programs related to educational outreach for boards of directors. We then visited the state banking agencies of 6 of these 10 states. We also conducted telephone interviews with knowledgeable officials in three other of these states. We were unable to visit or conduct a telephone interview with officials of the New Jersey Department of Banking.

To ensure that we were capturing information on any state laws that might be more stringent than federal law and regulations, we surveyed the banking agencies of the remaining 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and two territories (Guam and the U.S. Virgin Islands) about their state laws and regulations that related to 5 key provisions of Regulation O. Those provisions were the definition of insiders, preferential terms, lending limits, prior board approval, and overdrafts. (See ch. 1 for information on these provisions in Regulation O.) We conducted our survey with the assistance of the State Conference of State Bank Supervisors, who received and forwarded to us 40 responses out of 44 surveys sent out under its cover letter. On the basis of our analysis of the survey results, we also visited and collected information from state banking agencies in Montana, Iowa, Minnesota, and Virginia.

We discuss the results of our review of state laws and regulations and state examination policies and procedures in appendix V. We discuss the results of our work on state banking agency educational efforts in appendix VI.

We did this work in Washington, D.C., and at the state banking agency headquarters in San Francisco, California; Springfield, Illinois; Des Moines, Iowa; Boston, Massachusetts; St. Paul, Minnesota; Helena, Montana; New York, New York; Harrisburg, Pennsylvania; Austin, Texas; and Richmond, Virginia.

Appendix II

Insider Activities at Thrifts and Credit
Unions

[merged small][ocr errors]

The Office of Thrift Supervision (OTS) is responsible for supervising the 1,954 active, federally insured thrifts. OTS conducts both safety and soundness and compliance examinations as part of this supervision process. During 1991, OTS adopted a policy of annual examinations for all thrifts. Before 1991, OTS conducted biannual examinations. In 1991, OTS conducted an on-site, risk-focused examination of every institution it regulates. In addition, OTS conducted 793 compliance examinations that included assessments of how well thrifts complied with consumer laws, such as the Community Reinvestment Act.

Affiliate transactions and insider loans at thrifts generally are subject to FRA 23A and 23B and FRA 22(g) and 22(h) to the same extent as if they were banks. Transactions between savings associations and their affiliates are subject to restrictions set forth in 12 C.F.R. 563.41 and 563.42. Loans to insiders or their related interests are governed under 12 C.F.R. 563.43, which generally incorporates Regulation O by reference. This regulation became effective on November 5, 1992.

The following are examples of general insider lending restrictions under
Regulation O, incorporated by 12 C.F.R. 563.43, as they apply to thrifts:

General loan requirements: Loans must be approved in advance by a
majority of the entire board of directors, not be on preferential terms, and
not exceed aggregate individual and overall lending limits.
Lending limits: The aggregate amount of all transactions with insiders and
their related interests generally may not exceed 100 percent of an
institution's unimpaired capital and unimpaired surplus. Individual lending
limits for loans that are not fully secured are limited to 15 percent of
unimpaired capital and unimpaired surplus, with an additional limit of
10 percent of unimpaired capital and unimpaired surplus for loans that are
fully secured.

OTS uses the same enforcement powers as bank regulators to get thrifts to correct identified problems. The Financial Institutions Reform, Recovery and Enforcement Act of 1991 expanded OTS' authority to issue civil money penalties to make it identical to that of the bank regulatory agencies. OTS has issued numerous (1) cease and desist orders requiring restitution and other affirmative relief, (2) supervisory agreements, (3) orders of removal and prohibition, (4) civil money penalties, (5) debarments of professionals from agency practice, and (6) capital directives and other remedial measures. OTS has also imposed restitution orders on individuals who

« AnteriorContinuar »