Analyses that banking regulators conducted for many of the 22 major capital and liquidity rules issued in the wake of the 2007-09 financial crisis, through 2021, did not consistently reflect leading practices, the congressional watchdog said in a report issued Thursday.
According to the Government Accountability Office (GAO), the regulators should have 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, “Improvements Needed to Policies and Procedures for Regulatory 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.”
The report allows that 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 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.”
GAO also maintained that the banking regulators’ policies and procedures for rule analysis did not always align with lending practices. The report notes that the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) revised policies and procedures for analyses of proposed rules in 2022 and 2021. The report states that their policies “now largely align with leading practices.”
The Federal Reserve, however, has not updated its policies since 1994 the report asserted. 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 report states.
The report also claims that regulators conducted few retrospective reviews of the effects of their existing rules. It concedes that the FDIC adopted a policy in December 2022 to conduct at least one such review annually. However, it states, the OCC and the Federal Reserve do not have a similar policy. “Implementing one could help them assess whether their rules have had intended effects and inform future rulemakings,” the report states.
GAO said it recommended that the the Federal Reserve update policies and procedures for regulatory analyses to align with leading practices, and OCC and the Federal Reserve develop policies “for systematically performing retrospective reviews.”
The Federal Reserve agreed with the recommendations. OCC neither agreed nor disagreed but stated it will address the recommendation, GAO said.