Academic journal article ABA Banking Journal

GAO Insider Probe Hits Bankers and Examiners

Academic journal article ABA Banking Journal

GAO Insider Probe Hits Bankers and Examiners

Article excerpt

If bankers and their boards feel more heat from examiners reviewing insider transactions in the next few months, they may have the General Accounting Office to thank for it.

In late March, GAO, the auditing arm of Congress, issued an intensive study of insider activities at failed and open banks and of federal supervision of insider activities. The study was compiled at the request of Senate Banking Committee Chairman Donald Riegle (D.-Mich.) and House Banking Committee Chairman Henry Gonzalez (D.-Texas). The 140-page study's findings, in brief:

1. Insider problems and violations existed at many of the 286 banks that failed in 1990 and 1991 and were also evident at 13 open banks that were scrutinized.

GAO stated that FDIC investigators found insider fraud--criminal and intentional deception--at 36% of the failed banks. GAO also reported that instances of insider abuse--where insiders benefit from abusive action that falls short of being a criminal act--were found in 41% of the 286 failed banks. And in 28% of the failed banks, credit granted to insiders contributed towards loan losses.

2. Federal examiners cited 561 insider violations at the 175 banks (out of the 286 failed banks) that experienced some type of insider problem in the three years before they failed.

The most common violations cited were exceeding insider lending limits and extending preferential loan terms to insiders. GAO investigators found that 10 of the 13 open banks selected for study had been cited for violations too, with the same two types of violations most frequently noted.

3. …

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