GAO Reports FDIC Vulnerable to ‘Regulatory Capture’—A Charge Often Leveled at NCUA

Bankers have long complained that the National Credit Union Administration is a cheerleader for the industry, but now one of their banking regulators is being accused of so-called “regulatory capture.”

In a new report, the Government Accountability Office said that the Federal Deposit Insurance Corporation failed to provide documentation necessary to demonstrate the objectivity of examiners.

GAO defines regulatory capture “as a condition that exists when a regulator acts in service of private interests, such as the interests of the regulated industry, at the expense of the public interest due to actions taken by the interested parties.”

Banking trade groups have accused the NCUA of regulatory capture. “The industry’s regulators acted more like cheerleaders than officials charged with providing proper oversight,” the American Bankers Association said earlier this year on its anti-credit union website,

The GAO says that “experts generally agree that capture is a potentially significant threat to an agency’s efforts to regulate industry effectively.”

In the new report, the GAO said that the FDIC did not always document whether a bank addressed all the “high-risk” problems cited by examiners. The agency also deletes examination documentation after one examination cycle, according to the report. In addition, the GAO said that the agency did not always follow the employment of examiners when they left the agency—opening up the possibility that an examiner’s independence could have been compromised in exchange for a future job.

FDIC policy requires that the agency review the work papers of examiners-in-charge who accept jobs with banks they examined in the last 18 months, the GAO said. But the agency does not instruct managers conducting exit interviews to ask all examiners-in-charge about their future employment plans, the GAO said.

Both of those issues make the agency vulnerable to “regulatory capture,” the GAO said.

The FDIC is the primary regulator of state banks that are not members of the Federal Reserve system and federally insured depository institutions. The OCC is the primary regulator of national banks.

GAO has said in the past that it was examining regulatory capture at the financial regulators. It already has issued a report saying that the Office of the Comptroller of the Currency was vulnerable to the problem. GAO has not indicated when it will release a report on the NCUA.


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