oversight

Bank Data: Material Loss of Oversight Information From Interstate Banking Is Unlikely

Published by the Government Accountability Office on 1997-03-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to Congressional Committees




March 1997
                BANK DATA
                Material Loss of
                Oversight Information
                From Interstate
                Banking Is Unlikely




GAO/GGD-97-49
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-260655

      March 26, 1997

      The Honorable Alfonse M. D’Amato
      Chairman
      The Honorable Paul S. Sarbanes
      Ranking Minority Member
      Committee on Banking, Housing, and
        Urban Affairs
      United States Senate

      The Honorable James Leach
      Chairman
      The Honorable Henry B. Gonzalez
      Ranking Minority Member
      Committee on Banking and Financial Services
      House of Representatives

      The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
      (Riegle-Neal) authorizes interstate mergers between banks beginning
      June 1, 1997, regardless of whether the transaction would be prohibited by
      state law.1 In addition, Riegle-Neal also provided that banks may branch
      across state lines if the host state has a law permitting the establishment
      or acquisition of branches by out-of-state banks. Interstate mergers
      between banks and the establishment of interstate branches are allowed
      before June 1, 1997, in states having laws that expressly allow such
      mergers. Previously, most banks that wanted to operate across state lines
      had to establish a bank holding company (BHC) and, with certain
      restrictions, acquire or charter a bank in each state in which they wanted
      to operate. With the advent of interstate branching, (1) banks that
      previously could not expand across state lines may do so and (2) some
      multistate BHCs may combine their operations into single banks with
      multistate branches.

      When Congress passed Riegle-Neal, there was a concern that information
      regarding the distribution of bank deposits and loans by state would be
      lost. As a result, Congress mandated that we determine whether
      implementation of the act would result in a material loss of information
      that is important for federal bank regulation and oversight. Specifically,
      and in accordance with our responsibilities under section 112 of the act,
      our objectives in preparing this report were to (1) examine how the
      interstate branching provisions of Riegle-Neal are likely to affect the


      1
      Riegle-Neal gives states the right to opt out of this arrangement if they pass legislation prohibiting
      merger transactions with out-of-state banks before June 1, 1997.



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                 usefulness of the deposit and loan data collected and reported to federal
                 regulators by the banking industry under statutory and regulatory
                 requirements and (2) determine whether modifications to such data
                 requirements would help to ensure that the implementation of the act’s
                 interstate branching provisions does not result in a material loss of
                 information important to regulatory and congressional oversight of banks.
                 Our analysis was limited to identifying information reported to regulators
                 that would potentially be lost as a result of the implementation of
                 Riegle-Neal.


                 Oversight of federally insured state-chartered banks is provided by state
Background       bank regulators and either the Federal Reserve System—for banks that are
                 members of the Federal Reserve—or the Federal Deposit Insurance
                 Corporation (FDIC)—for other state-chartered banks. National bank
                 oversight is provided by the Office of the Comptroller of the Currency
                 (OCC). As the deposit insurer, FDIC has back-up oversight authority for all
                 FDIC-insured banks. This authority allows FDIC to examine potentially
                 troubled institutions and take enforcement actions, even when it is not the
                 institution’s primary regulator. In addition to its authority over
                 state-chartered member banks, the Federal Reserve oversees all BHCs.

                 In accordance with a variety of federal laws and regulations, banks
                 routinely provide federal bank regulators with reports containing
                 information about their deposit and lending activities. These reports
                 include the following:

             •   a quarterly financial report (call report), which is submitted to the primary
                 federal bank regulator;
             •   an annual independent audit report (for banks with $500 million or more
                 in assets), which is submitted to FDIC and relevant federal and state bank
                 regulators;
             •   an annual summary of deposits report for each branch, which is submitted
                 to FDIC;
             •   a statement of amounts required to be held as reserves, which is submitted
                 to the Federal Reserve; and
             •   an annual report on home mortgage lending (for banks that originate,
                 purchase, or receive applications for home purchase and home
                 improvement loans and that have assets greater than $28 million in 1997),
                 which is submitted to the bank’s primary federal regulator.




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                   In addition, as of January 1997, revisions to the Community Reinvestment
                   Act (CRA)2 interagency regulations require banks that have assets of
                   $250 million or more, or banks that are affiliates of a BHC with assets of
                   $1 billion or more, to report to their regulators some new data. These
                   banks are required to annually report, by geographic location, the
                   aggregate number and aggregate amount of small business and small farm
                   lending loans originated or purchased, and the aggregate number and
                   aggregate amount of community development loans originated or
                   purchased. BHCs are also required to submit to the Federal Reserve
                   quarterly financial reports (Y-9 reports) on the consolidated activities of
                   their bank and nonbank subsidiaries.

                   Federal bank regulators, along with other agencies, typically use the
                   lending and deposit information gathered in these reports and special
                   purpose reviews to carry out their oversight responsibilities. Congress gets
                   information through a variety of means, including directly from bank
                   regulators and also from the legislative support agencies including us, the
                   Congressional Research Service (CRS), and the Congressional Budget
                   Office (CBO). These support agencies, in turn, use the information gathered
                   in these banking reports, along with other sources, to do various analyses
                   for Congress.

                   Parties other than federal regulators, such as industry analysts and
                   community organizations, may also use call reports and Y-9 reports (both
                   of which are publicly available) to produce state, regional, and national
                   summaries of the types and overall dollar amounts of loans and deposits
                   held by banks and BHCs. These parties also frequently use home
                   mortgage-related lending reports to assess the availability of credit to
                   various groups within a geographical area, such as a state. Because a state
                   was the largest area within which a bank could expand, information
                   collected at the bank level has been used by such parties to approximate
                   bank loan and deposit activity within a state.



                   To the extent that interstate branching becomes prevalent, call report
Results in Brief   data—as currently collected and reported—will become less useful for
                   approximating bank loan and deposit activity within a state. As BHCs
                   consolidate by merging multistate banking operations and as banks

                   2
                    CRA requires each federal bank or thrift regulator to (1) assess an institution’s record of helping to
                   meet the credit needs in all areas of the community that the institution is chartered to serve, which is
                   consistent with safe and sound operation of the institution, and (2) take this record into account in the
                   agency’s evaluation of an application for a deposit facility by the institution.



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                     expand across state lines by opening or acquiring branches, call report
                     information reported at the bank level will increasingly encompass the
                     loans and deposits from more than one state. However, accurately
                     measuring loan and deposit activity by state was subject to limitations
                     even before Riegle-Neal. BHCs had already begun establishing interstate
                     operations and creating regional booking centers for some of their
                     activities and national markets have developed for certain bank products.

                     Compared with the information that existed before it was enacted, the
                     implementation of Riegle-Neal is unlikely to result in a material loss of
                     information necessary to perform regulatory and congressional oversight
                     for three reasons. First, as previously mentioned, the usefulness of call
                     report data to approximate bank loan or deposit activities within a state
                     was already somewhat limited and has become increasingly so, but only in
                     part due to Riegle-Neal. Second, sources of information collected at the
                     branch level or by geographic location should not be affected by interstate
                     branching. For example, summary of deposits data should still be available
                     to measure deposit activities that are booked in a particular state, although
                     these data will not provide information on the geographic source of those
                     deposits. Also, home mortgage loan data should be available as an
                     indicator of mortgage loan activity in a geographic area. Finally, the most
                     useful and detailed information about bank activities is attained through
                     examinations. Regulators with primary supervisory responsibility still
                     have this tool available, although those who rely solely on off-site
                     information will not. For these reasons, at this time, there does not appear
                     to be sufficient need to modify regulatory or statutory reporting
                     requirements.


                     To determine what information regulators collect from banks, we
Objectives, Scope,   reviewed the laws and regulations pertaining to the requirements for
and Methodology      banks and BHCs to report data on bank activities (focusing on loans and
                     deposits).3 These laws and regulations consisted primarily of those
                     authorizing federal bank regulators to conduct examinations, collect
                     financial statement data, collect bank deposit information, and encourage
                     banks to provide credit to the communities in which they operate. In
                     addition, we obtained regulators’ and others’ views about whether
                     interstate branching would pose new or different needs for information.
                     We concentrated our review on information that is currently collected
                     from banks and BHCs. We did not conduct an independent analysis to

                     3
                      We limited our scope to banks since federally chartered thrifts were allowed to branch across state
                     lines before Riegle-Neal was passed. However, the issues cited in this report, with respect to the
                     usefulness of bank loan and deposit data, would also apply to thrifts.



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identify all of the information that regulators and Congress may need to
execute their regulatory and oversight responsibilities.

To obtain views on the effect that Riegle-Neal is likely to have on the
usefulness of reported loan and deposit data, we held discussions with
staff members at the Board of Governors of the Federal Reserve System,
the Federal Reserve Bank of Dallas, and headquarters and field offices of
FDIC and OCC. We also spoke with staff members at CBO and CRS in their
roles as users of data for congressional oversight. In addition, we
interviewed representatives of several community organizations (the
National Community Reinvestment Coalition, the Center for Community
Change, and the Association of Community Organizations for Reform
Now). We did not attempt to identify all users of reported loan and deposit
data.

To determine whether there would likely be a material loss of information
important to regulatory and congressional oversight of banks, we
reviewed call, Y-9, Summary of Deposit, Home Mortgage Disclosure Act
(HMDA) loan application register, and required reserve reports collected by
the regulators pursuant to laws and regulations. We also reviewed the loan
and deposit data the regulators make available to us as the investigative
arm of Congress. We then reviewed in greater detail the loan and deposit
information that regulators summarized by state, region, and nationwide.

We conducted our work between March 1994 and November 1996 in
Dallas and Washington, D.C. We provided a draft of this report to the
heads of the Federal Reserve, FDIC, and OCC for their review and comment.
We also provided the community organizations and other parties we
contacted with the opportunity to comment on portions of the draft report
that we attributed to them. The comments we received are discussed and
evaluated on pages 12 to 14, and the written comments are reprinted in
appendixes I and II. Our work was done in accordance with generally
accepted government auditing standards.




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                                           Regulators collect a variety of information about bank loan and deposit
Call Report Data May                       activities through reports filed by banks and BHCs. These reporting
Become Less Useful                         requirements were not affected by Riegle-Neal. In table 1, we briefly
for Approximating                          describe the loan reports and the information collected from them. Call
                                           reports and Y-9 reports are the primary sources of data that banks and
Bank Activities by                         BHCs provide to regulators. Both reports contain a summary of the entity’s
State                                      loan portfolio categorized by type of loan (e.g., real estate or consumer).
                                           The HMDA loan application register4 and the new CRA report on small
                                           business and small farm lending are to collect data, by geographic
                                           location, on specific categories of bank loans to assist the regulators in
                                           enforcing the federal fair lending laws. Unlike data from call reports and
                                           Y-9 reports, data from these reports are collected to assess a bank’s
                                           compliance with federal fair lending laws and to assess the bank’s
                                           performance in meeting the credit needs of its local community. In
                                           addition, the HMDA data are submitted only by banks engaged in originating
                                           home mortgage loans; banks that merely purchase loans are not required
                                           to submit HMDA data.


Table 1: Reports Containing Information on Bank Loans
Report            Loan information                            Reporting level                                   Recipient        Frequency
Call             Amounts by type of loan                      Bank                                              Federal bank Quarterly
 report                                                                                                         regulators
Y-9              Aggregate amounts of all banks in the        BHC                                               Federal          Quarterly
  report         BHC, by type of loan and income of                                                             Reserve
                 applicant
HMDA loan        Race, ethnicity, gender, and geographic      Banks with assets greater than           Federal bank Annually
 application     location of collateral for home              approximately $28 million in 1997 that   regulators
 register        mortgage-related loan and type of loan       originate, purchase, or receive
                 action                                       applications for home purchase and home
                                                              improvement loans each calendar year,
                                                              and that had an office within a standard
                                                              metropolitan statistical area
CRA report       Geographic location, the aggregate           Banks with assets of $250 million or more         Federal bank Annually
 (effective      number and aggregate amount of small         or banks that are affiliated with a BHC           regulators
 January 1,      business and small farm loans originated     whose total assets exceed $1 billion
 1997)           and purchased and the aggregate
                 number and amount of community
                 development loans
                                           Source: GAO analysis of bank reports to and reporting requirements of bank regulators.




                                           4
                                            The HMDA loan application register is the vehicle for collecting data on home mortgage lending as
                                           required by HMDA.



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                               In table 2, we describe the reports that banks and BHCs use to provide
                               regulators with information about their deposits. Call reports again
                               provide the greatest detail about a bank’s total deposits because they
                               provide a summary of a bank’s total deposits by type (e.g., demand
                               deposits). The Summary of Deposits report provides the most
                               comprehensive information on bank deposits by location, but only
                               provides information on the total bank deposits based on the branch in
                               which the account is located. Additionally, these data are only collected
                               yearly. The Required Reserve report provides more limited information on
                               bank deposits.

Table 2: Reports Containing
Information on Bank Deposits                                                 Level of
                               Report             Deposit information        reporting         Recipient         Frequency
                               Call               Amounts by type of         Bank              Federal bank      Quarterly
                                report            deposit                                      regulators
                               Y-9                Aggregate amounts of       BHC               Federal           Quarterly
                                 report           all banks in the BHC,                        Reserve
                                                  by type of deposit
                               Summary of         Amounts held in each Branch                  FDIC              Annually
                                 Deposits         insured office of a bank
                                 report
                               Required           Reserves held by           Bank              Federal           Weekly or
                                Reserve           banks as a result of                         Reserve           quarterly,
                                report            reserve requirements                                           depending on
                                                  on deposits                                                    bank size
                               Source: GAO analysis of bank reports to and reporting requirements of bank regulators.




Data From Call and Y-9         Although regulators and other interested parties have used call report data
Reports Have Historically      to produce state, regional, and national summaries of the types and overall
Had Limited Usefulness in      dollar amounts of loans and deposits held by banks, the data reported
                               have always had limitations in their ability to provide information about
Determining State Banking      the geographical location of banking activity. In measuring loan activity,
Activity                       limitations have existed because the data used to compile call reports do
                               not explicitly identify the geographic location of the borrower or the
                               project being funded. As a result, questions exist as to how appropriate it
                               has ever been to assume that the loans held by a bank were made (1) by a
                               banking entity located in the same state in which the bank reporting the
                               loan was chartered or (2) to a party living or doing business in the state
                               where the bank reporting the loan was chartered. These limitations could
                               become more apparent and more widespread once Riegle-Neal is




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    implemented, since the activities reported by banks with interstate
    operations will clearly include activities in a number of states.

    According to regulatory officials, loan data reported in the call reports and
    Y-9 reports do not represent total bank lending in a particular state or
    region for the following reasons:

•   A significant percentage of a bank’s mortgage loans are sold in secondary
    markets through such entities as the Federal National Mortgage
    Association (Fannie Mae) and the Federal Home Loan Mortgage
    Corporation (Freddie Mac).
•   Banks sometime transfer all, or a portion, of a loan to an affiliated bank or
    sell loans to unaffiliated banks. Banks make such transfers to diversify
    portfolios and to ensure compliance with legal lending limits. In addition,
    some BHCs have their bank subsidiaries transfer all loans of a certain type
    to one bank to better serve customers and reduce operating expenses.
•   Banks that serve a multistate market (e.g., the metropolitan area of
    Washington, D.C.) may directly lend to out-of-state customers.

    Therefore, if a study were trying to determine the amount of loans made
    by banks to borrowers in a state or region, call report data alone, at least
    as currently collected and reported, could not answer the question.
    Researchers interested in studying the geographic distribution of loans
    noted such limitations before Riegle-Neal was considered. For such
    studies, data from the HMDA loan application register, and presumably the
    data to be collected on small business and small farm loans, may be more
    useful since they provide specific geographic information on borrowers.
    However, similar geographic information on a bank’s entire loan portfolio
    is not available from these sources.

    Call report data on deposits do not identify the location of a bank’s
    depositors, much as the loan data does not identify the location of a bank’s
    borrowers. The Required Reserve report serves a specific bank oversight
    function, as previously described, and is not suited to providing detailed
    information about the types of deposits or the location of depositors. The
    most detailed information on the location of depositors is provided by the
    Summary of Deposits report. This report is the only one that identifies a
    bank’s deposits by branch. However, regulators pointed out that even the
    Summary of Deposits report contains inherent limitations regarding the
    origin of a bank’s deposits. For example, banks may purchase deposits in
    the national market; in this case, the reporting branch need not reflect
    either the depositor’s home or business location. Therefore, while a



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                             state-by-state analysis of a bank’s Summary of Deposits report identifies
                             where deposits exist, it does not necessarily identify the location of the
                             depositor and, thus, the location from which the funds come. In addition,
                             unlike call report data, which are collected quarterly, the data in the
                             Summary of Deposits report are collected yearly.


Interstate Branching Could   To the extent that interstate branching becomes prevalent, the usefulness
Increase the Number of       of information reported to bank regulators, which is currently used to
Banks Reporting Data         compile banking data on a state-by-state basis, would become even more
                             problematic. If BHCs consolidate their operations by merging multistate
From Activities in More      banking operations or if banks expand across state lines by opening or
Than One State               acquiring branches, call report information would increasingly encompass
                             the loans and deposits of more than one state. Therefore, although the
                             data collected will not change, the geographical information content of the
                             data is likely to become less useful because the data are collected at the
                             bank level rather than the branch level.


                             While the usefulness of data collected at the bank level to provide
Implementation of            information for state-by-state measures of banking activity—including
Riegle-Neal Is               monitoring the industry’s geographic concentrations—may be affected by
Unlikely to Lead to          Riegle-Neal, it is unlikely to have a material effect on federal regulation or
                             oversight for three reasons. First, as previously mentioned, the data
Material Loss of             reported on call reports have always had limitations from the standpoint
Information                  of imparting geographic information about bank loans. Second, deposit
                             data should continue to be provided at the branch level and, with the
                             limitations noted, should provide some measure of state-by-state banking
                             activity. Third, the most useful and detailed information about bank
                             activities is attained through examinations. Regulators with primary
                             supervisory responsibility still have this tool available, although those who
                             rely solely on off-site information will not.


Regulators Do Not Rely       Regulators use the information described in the previously mentioned
Solely on Off-Site           reports to perform various off-site analyses of banks and BHCs, including
Information in Their         (1) financial statements and financial trends, (2) fair lending practices, and
                             (3) market concentrations of deposits. Additionally, bank regulators use
Oversight                    call reports and Y-9 reports to assist them in planning, scoping, and
                             conducting safety and soundness examinations or inspections,
                             respectively. Data from these reports provide regulators with financial
                             information about the institutions’ activities and reported financial



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conditions. Analyses of the data provide insights about the institutions
over time and compared with other institutions. To a lesser degree,
regulators use the annual independent audit reports in planning safety and
soundness examinations for those institutions required to have annual
independent audits.

Bank regulators are responsible for assessing compliance with various fair
lending and consumer protection laws, including the CRA, and they rely, in
part, on annual home mortgage-related lending reports to plan, scope, and
conduct their compliance and CRA examinations. Likewise, the new small
business and small farm loan report is likely to be used in those
examinations. The other deposit and reserve reports are not routinely used
by regulators in discharging their examination responsibilities, although
the related information may be made available to them upon request.
These reports are used primarily by FDIC and the Federal Reserve in
monitoring institutions’ deposit and reserve activities to assess insurance
premiums and to determine that banks are maintaining the proper amount
of reserves, respectively.

When considering banks’ applications for mergers and acquisitions, bank
regulators and the Department of Justice also use the various
reports—particularly the Summary of Deposits report and the home
mortgage loan report—to assess any antitrust or fair lending implications.
With respect to their antitrust review, bank regulators and Justice officials
typically look to see if the new banking entity could create an undue
concentration of loan or deposit activities in a particular market, which
could impede fair and open competition among institutions.

Regulatory staff told us that, although the data collected in the various
reports are essential to effective off-site monitoring, regulatory actions are
rarely, if ever, premised solely upon this information. Off-site information
is to be supplemented by on-site examinations or visitations. For example,
call reports, which are the most comprehensive and frequently used
sources of publicly available information, typically provide regulators with
indicators about an institution’s activities and condition. However, the call
reports must be supplemented with more detailed and explicit information
about the institution’s deposits, lending, and other investment activities.
Similarly, the annual home mortgage loan report is used by the bank
regulators as an initial indicator of a bank’s performance under the fair
lending and CRA laws and regulations, but assessments of the bank’s
lending practices involve detailed analyses and generally are
supplemented by on-site examinations. Regulators recognize that call



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                              reports, as well as the other reports, can only provide indicators of an
                              institution’s activities and must be supplemented through examinations.


Off-Site Information Has      While bank supervisors use call report data primarily for planning their
Been Useful in Identifying    on-site examinations, FDIC staff members told us that they use these data in
Trends in Industry Activity   their back-up oversight authority. In the past, FDIC staff members have
                              analyzed call report data to identify patterns or trends in industry activity
                              or within geographic areas, particularly those that may indicate a problem
                              that could affect industry stability. Their research is important in
                              identifying historical patterns or trends that can be used to project or
                              anticipate potential bank losses, failures, or crises. FDIC staff members
                              expressed concern that call report data are increasingly becoming less
                              useful for these purposes as consolidation occurs, and they are concerned
                              about further deterioration in the data’s usefulness after Riegle-Neal is
                              implemented. FDIC staff members are considering recommendations to
                              change the call reports to require banks to report their loan and deposit
                              activity by state.


Views Are Mixed               Representatives from financial institutions and industry trade groups told
Regarding the Need for        us that, on the basis of their past experience, they did not believe that
More Detailed Bank Data       interstate branching would materially affect the usefulness, for regulation
                              or oversight purposes, of lending and deposit information currently
                              collected by federal regulators. Specifically, none of these representatives
                              thought that interstate branching would necessitate that federal bank
                              regulators collect additional data to conduct CRA examinations. They
                              pointed out that Riegle-Neal expands the CRA examination process to
                              require separate state-by-state written evaluations, including a rating, for
                              banks with interstate branches. The act also requires that separate written
                              evaluations, including a rating, be prepared for branches located in
                              multistate metropolitan areas. Finally, officials at the federal bank
                              regulatory agencies stated that section 109 of Riegle-Neal requires their
                              agencies to promulgate uniform regulations by June 1997 that prohibit
                              banks with interstate branch networks from using their out-of-state
                              branches simply to operate as deposit production offices (i.e., as offices
                              that take deposits but do not make loans in their communities). On
                              March 12, 1997, the agencies released for comment a proposal setting forth
                              such regulations. Moreover, at least 1 year after a bank establishes or
                              acquires an interstate branch(es), the appropriate federal banking agency
                              should determine whether the bank is operating the branch(es) as a
                              deposit production office.



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                     Representatives from consumer and community organizations did not
                     necessarily believe that a material loss of information would result from
                     interstate banking. However, they stated that to ensure there is no material
                     loss of information necessary to oversee bank activities in an interstate
                     branching environment, banks should be required to submit information
                     on the origin of their loans and deposits. Some representatives suggested
                     that this requirement should take the form of having banks submit call
                     report data for each state in which they operate. In general, the
                     representatives believed that regulators and Congress would better be able
                     to carry out their regulatory and oversight functions if banks were
                     required to submit information on loans by branch as they are required to
                     do for deposits. They also pointed out that such data, by branch, would
                     make it easier for their groups to monitor bank lending activities. As
                     previously noted, many of these organizations had expressed similar
                     concerns about the usefulness of call report data before Riegle-Neal was
                     even considered because information regarding the geographical
                     distribution of loans is one of the groups’ particular concerns. Therefore,
                     the implementation of Riegle-Neal did not give rise to their concern, but
                     does heighten it.


                     We provided a draft of this report to the Chairman of the Board of
Agency Comments      Governors, Federal Reserve System; the Chairman of the Federal Deposit
and Our Evaluation   Insurance Corporation; and the Comptroller of the Currency for their
                     review and comment. We also provided the community organizations we
                     contacted the opportunity to review and comment on a draft of this report.
                     The Federal Reserve and the community organizations did not offer any
                     comments on the draft report. However, the Comptroller of the Currency
                     provided comments in a letter dated February 6, 1997, and the FDIC
                     Chairman commented in a January 27, 1997, letter. The comment letters
                     are reprinted in appendixes I and II.

                     OCC generally agreed with our conclusions, especially given the call report
                     limitations we described. OCC stated that it understood the potential value
                     of more precise geographic information for researching and monitoring
                     regional trends and the relationship between regional economic
                     conditions and bank performance. However, OCC also recognized that
                     reporting is not without its burdens and that proposals to increase
                     reporting requirements must be considered carefully.

                     FDIC expressed some concern with the draft report’s conclusion, but did
                     not disagree that the implementation of Riegle-Neal in and of itself will not



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cause a material loss of information. FDIC pointed out that for the last
decade banks have expanded their lending beyond traditional geographic
boundaries and that, to the extent this trend continues, the usefulness of
institution-level data will continue to erode. FDIC’s primary concern with
our conclusion was that FDIC believes it does not place sufficient emphasis
on the effects that interstate branching will have in accelerating this trend
and eventually leading to what FDIC considers a material loss of
information it uses for statistical and economic studies that assist FDIC in
fulfilling its responsibilities.

FDIC believes that its need for the geographic data being lost is greatest for
large institutions that FDIC insures but does not supervise because these
institutions are more likely to have lending exposures outside of their
home states. Given FDIC’s unique role and responsibility as deposit insurer,
it believes the ongoing loss of geographic data is material to FDIC. In
addition, FDIC believes that call report data are the best source of aggregate
data, while on-site examinations are less useful for this purpose. However,
FDIC acknowledges that, from a cost-benefit perspective, there is a
question about what kinds and how much additional data could be
justifiably collected—either in call reports or other regulatory
reports—that would permit more effective off-site monitoring.

FDIC also suggested that our conclusion was in conflict with our report on
the bank oversight structure5 because in that report, we encouraged the
use of off-site monitoring to better target and plan on-site examinations.
FDIC believes our position in this current report (i.e., the best
institution-level information is available through on-site investigation)
contradicts our previous position.

We understand why FDIC places more emphasis than other regulators on
the effect Riegle-Neal may have in eroding the geographic content of call
report data, given FDIC’s responsibility to monitor institutions that it does
not directly supervise. As deposit insurer, FDIC may have unique
research-based information needs that other federal bank regulators do
not have. However, while FDIC may need this type of information, we agree
with both FDIC and OCC that this need must be balanced against the
burdens additional reporting requirements could impose on the industry.
Collectively, the bank regulators are in the best position to make such
cost-benefit determinations.



5
 Bank Oversight Structure: U.S. and Foreign Experience May Offer Lessons for Modernizing U.S.
Structure (GAO/GGD-97-23, Nov. 20, 1996).



Page 13                             GAO/GGD-97-49 Interstate Banking Data Loss Not Material
B-260655




We do not believe our position in this report contradicts our earlier
position on the value of off-site monitoring. Off-site monitoring provides
regulators with useful indicators about a bank’s activities and performance
that are generally further analyzed through on-site examinations involving
the review of more specific information. Regulators are not precluded
from requesting information from banks, beyond the information that is
reflected in call reports, to enhance their off-site monitoring as well as
decisions about on-site examinations.


We are sending copies of this report to the Chairman of the Board of
Governors of the Federal Reserve System, the Chairman of the Federal
Deposit Insurance Corporation, the Comptroller of the Currency, other
members of the banking committees, other interested congressional
committees, and other interested parties. We will also make copies
available to others upon request.

This report was prepared under the direction of Mark Gillen, Assistant
Director, Financial Institutions and Markets Issues. Major contributors to
this report are listed in appendix III. If there are any questions about this
report, please contact me at (202) 512-8678.




Thomas J. McCool
Associate Director, Financial
  Institutions and Markets Issues




Page 14                     GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Page 15   GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Contents



Letter                                                                                                1


Appendix I                                                                                           18

Comments From the
Comptroller of the
Currency
Appendix II                                                                                          20
                        GAO Comment                                                                  29
Comments From the
Federal Deposit
Insurance
Corporation
Appendix III                                                                                         30

Major Contributors to
This Report
Tables                  Table 1: Reports Containing Information on Bank Loans                         6
                        Table 2: Reports Containing Information on Bank Deposits                      7




                        Abbreviations

                        BHC       bank holding company
                        CBO       Congressional Budget Office
                        CRA       Community Reinvestment Act
                        CRS       Congressional Research Service
                        FDIC      Federal Deposit Insurance Corporation
                        HMDA      Home Mortgage Disclosure Act
                        OCC       Office of the Comptroller of the Currency


                        Page 16                  GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Page 17   GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix I

Comments From the Comptroller of the
Currency




              Page 18   GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix I
Comments From the Comptroller of the
Currency




Page 19                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II

Comments From the Federal Deposit
Insurance Corporation

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 20   GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 21                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 22                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
                 Appendix II
                 Comments From the Federal Deposit
                 Insurance Corporation




See comment on
p. 29.




                 Page 23                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
                              Appendix II
                              Comments From the Federal Deposit
                              Insurance Corporation




Note: The charts on pages
24 to 27 were scanned
from color originals, which
do not produce high-
quality, black-and-white
copies.




                              Page 24                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 25                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 26                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 27                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix II
Comments From the Federal Deposit
Insurance Corporation




Page 28                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
              Appendix II
              Comments From the Federal Deposit
              Insurance Corporation




              The following is GAO’s comment on the Federal Deposit Insurance
              Corporation’s letter dated January 27, 1997.


              Text was added to eliminate confusion about when FDIC must produce
GAO Comment   regulations and make determinations about deposit production offices.




              Page 29                       GAO/GGD-97-49 Interstate Banking Data Loss Not Material
Appendix III

Major Contributors to This Report


                        Stephen C. Swaim, Assistant Director (Retired)
General Government      Rose M. Kushmeider, Senior Economist
Division, Washington,   Desiree Whipple, Communications Analyst
D.C.
                        Jeanne Barger, Issue Area Manager
Dallas Field Office     John V. Kelly, Evaluator-in-Charge




(233467)                Page 30                   GAO/GGD-97-49 Interstate Banking Data Loss Not Material
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