WASHINGTON–Newly released analyses conducted by banking regulators on most of the 22 major capital and liquidity rules issued in the wake of the 2007-09 financial crisis has found they did not consistently reflect lending practices through 2021.
According to the Government Accountability Office (GAO), regulators should have instead assessed the potential and actual effects, specifically noting costs and benefits, of proposed final rules.
“But bank regulators didn’t consistently document their analyses of proposed rules and did few reviews of existing rules,” the GAO said in its report titled “Improvements Needed to Policies and Procedures for Regulatory Analysis.”
According to Regulatory Report, which first published news of the analysis, GAO said it recommended that the Federal Reserve update its policies and procedures for regulatory analyses to align with leading practices, and that the OCC and the Federal Reserve develop policies “for systematically performing retrospective reviews.”
Some Improvements Seen
The report acknowledges regulators have improved analyses in recent years by including more information on a rule’s expected impact. “However, they did not always identify alternative approaches or quantify benefits and costs,” the report states. “The Federal Reserve also had little or no documentation of its analyses (other than descriptions in Federal Register notices) for three of 21 rules in which it was involved. Documentation for the other 18 rules did not consistently discuss methods and data used and how conclusions were reached.”
Additional Findings
The report further found and/or suggested:
- Banking regulators’ policies and procedures for rule analysis did not always align with lending practices. The report states the FDIC and Office of the Comptroller of the Currency (OCC) revised policies and procedures for analyses of proposed rules in 2022 and 2021, and further states their policies “now largely align with leading practices.”
- The Federal Reserve has not updated its policies since 1994, and that includes not requiring cost-benefit assessments and documentation of data sources and analyses. “Better policies and procedures for these analyses would help the Federal Reserve ensure its rules are cost-beneficial and its conclusions are transparent,” the GAO said.
- Regulators conducted few retrospective reviews of the effects of their existing rules. The report notes, however, the FDIC adopted a policy in December 2022 to conduct at least one such review annually. The OCC and Fed, however, do not have a similar policy.
According to the GAO, the Federal Reserve agreed with the recommendations, while the OCC neither agreed nor disagreed but stated it will address the recommendation, GAO said.