Bank Data: Material Loss of Oversight Information from Interstate Banking
Is Unlikely (Letter Report, 03/26/97, GAO/GGD-97-49).

Pursuant to a legislative requirement, GAO reviewed how the interstate
branching provisions of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 are likely to affect the usefulness of the
deposit and loan data collected and reported to federal regulators by
the banking industry under statutory and regulatory requirements,
focusing on whether modifications to such data requirements would help
to ensure that the implementation of the act's interstate branching
provisions does not result in material loss of information important to
regulatory and congressional oversight of banks.

GAO noted that: (1) to the extent that interstate branching becomes
prevalent, call report data, as currently collected and reported, will
become less useful for approximating bank loan and deposit activity
within a state; (2) as bank holding companies (BHC) consolidate by
merging multistate banking operations and as banks 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; (3) however, accurately measuring loan and
deposit activity by state was subject to limitations even before
Riegle-Neal; (4) 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; (5) 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; (6) 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; (7)
second, sources of information collected at the branch level or by
geographic location should not be affected by interstate branching; (8)
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; (9) also, home mortgage loan data should be
available as an indicator of mortgage loan activity in a geographic
area; (10) finally, the most useful and detailed information about bank
activities is attained through examinations; (11) regulators with
primary supervisory responsibility still have this tool available,
although those who rely solely on off-site information will not; and
(12) for these reasons, at this time, there does not appear to be
sufficient need to modify regulatory or statutory reporting
requirements.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-97-49
     TITLE:  Bank Data: Material Loss of Oversight Information from 
             Interstate Banking Is Unlikely
      DATE:  03/26/97
   SUBJECT:  Financial records
             Banking law
             Bank holding companies
             Bank deposits
             Bank loans
             Reporting requirements
             Bank examination
             Regulatory agencies
             Banking regulation
             Congressional oversight

             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1997

BANK DATA - MATERIAL LOSS OF
OVERSIGHT INFORMATION FROM
INTERSTATE BANKING IS UNLIKELY

GAO/GGD-97-49

Interstate Banking Data Loss Not Material

(233467)


Abbreviations
=============================================================== ABBREV

  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

Letter
=============================================================== LETTER


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
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. 


--------------------
\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. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Oversight of federally insured state-chartered banks is provided by
state 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. 

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. 


--------------------
\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. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

To the extent that interstate branching becomes prevalent, call
report 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 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. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

To determine what information regulators collect from banks, we
reviewed the laws and regulations pertaining to the requirements for
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 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. 


--------------------
\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. 


   CALL REPORT DATA MAY BECOME
   LESS USEFUL FOR APPROXIMATING
   BANK ACTIVITIES BY STATE
------------------------------------------------------------ Letter :4

Regulators collect a variety of information about bank loan and
deposit activities through reports filed by banks and BHCs.  These
reporting requirements were not affected by Riegle-Neal.  In table 1,
we briefly 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 BHCs provide to regulators.  Both reports contain
a summary of the entity's loan portfolio categorized by type of loan
(e.g., real estate or consumer).  The HMDA loan application
register\4 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

                                                              Recipien  Frequenc
Report      Loan information         Reporting level          t         y
----------  -----------------------  -----------------------  --------  --------
Call        Amounts by type of loan  Bank                     Federal   Quarterl
report                                                        bank      y
                                                              regulato
                                                              rs

Y-9         Aggregate amounts of     BHC                      Federal   Quarterl
report      all banks in the BHC,                             Reserve   y
            by type of loan and
            income of applicant

HMDA loan   Race, ethnicity,         Banks with assets        Federal   Annually
applicatio  gender, and geographic   greater than             bank
n           location of collateral   approximately $28        regulato
register    for home mortgage-       million in 1997 that     rs
            related loan and type    originate, purchase, or
            of loan action           receive applications
                                     for home purchase and
                                     home improvement loans
                                     each calendar year, and
                                     that had an office
                                     within a standard
                                     metropolitan
                                     statistical area

CRA         Geographic location,     Banks with assets of     Federal   Annually
report      the aggregate number     $250 million or more or  bank
(effective  and aggregate amount of  banks that are           regulato
January     small business and       affiliated with a BHC    rs
1,          small farm loans         whose total assets
1997)       originated and           exceed $1 billion
            purchased and the
            aggregate number and
            amount of community
            development loans
--------------------------------------------------------------------------------
Source:  GAO analysis of bank reports to and reporting requirements
of bank regulators. 

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 deposit  Bank       Federal    Quarterly
report                                            bank
                                                  regulator
                                                  s

Y-9        Aggregate amounts of all    BHC        Federal    Quarterly
report     banks in the BHC, by type              Reserve
           of deposit

Summary    Amounts held in each        Branch     FDIC       Annually
of         insured office of a bank
Deposits
report

Required   Reserves held by banks as   Bank       Federal    Weekly or
Reserve    a result of reserve                    Reserve    quarterly
report     requirements on deposits                          ,
                                                             depending
                                                             on bank
                                                             size
----------------------------------------------------------------------
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. 


      DATA FROM CALL AND Y-9
      REPORTS HAVE HISTORICALLY
      HAD LIMITED USEFULNESS IN
      DETERMINING STATE BANKING
      ACTIVITY
---------------------------------------------------------- Letter :4.1

Although regulators and other interested parties have used call
report data to produce state, regional, and national summaries of the
types and overall dollar amounts of loans and deposits held by banks,
the data reported have always had limitations in their ability to
provide information about the geographical location of banking
activity.  In measuring loan 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 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
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
      INCREASE THE NUMBER OF BANKS
      REPORTING DATA FROM
      ACTIVITIES IN MORE THAN ONE
      STATE
---------------------------------------------------------- Letter :4.2

To the extent that interstate branching becomes prevalent, the
usefulness of information reported to bank regulators, which is
currently used to compile banking data on a state-by-state basis,
would become even more problematic.  If BHCs consolidate their
operations by merging multistate banking operations or if banks
expand across state lines by opening or 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. 


   IMPLEMENTATION OF RIEGLE-NEAL
   IS UNLIKELY TO LEAD TO MATERIAL
   LOSS OF INFORMATION
------------------------------------------------------------ Letter :5

While the usefulness of data collected at the bank level to provide
information for state-by-state measures of banking
activity--including monitoring the industry's geographic
concentrations--may be affected by Riegle-Neal, it is unlikely to
have a material effect on federal regulation or oversight for three
reasons.  First, as previously mentioned, the data reported on call
reports have always had limitations from the standpoint 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
      SOLELY ON OFF-SITE
      INFORMATION IN THEIR
      OVERSIGHT
---------------------------------------------------------- Letter :5.1

Regulators use the information described in the previously mentioned
reports to perform various off-site analyses of banks and BHCs,
including (1) financial statements and financial trends, (2) fair
lending practices, and (3) market concentrations of deposits. 
Additionally, bank regulators use 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 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 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
      BEEN USEFUL IN IDENTIFYING
      TRENDS IN INDUSTRY ACTIVITY
---------------------------------------------------------- Letter :5.2

While bank supervisors use call report data primarily for planning
their on-site examinations, FDIC staff members told us that they use
these data in 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 REGARDING
      THE NEED FOR MORE DETAILED
      BANK DATA
---------------------------------------------------------- Letter :5.3

Representatives from financial institutions and industry trade groups
told us that, on the basis of their past experience, they did not
believe that 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. 

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. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :6

We provided a draft of this report to the Chairman of the Board of
Governors, Federal Reserve System; the Chairman of the Federal
Deposit 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 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 structure\5 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. 

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. 


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


---------------------------------------------------------- Letter :6.1

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




(See figure in printed edition.)Appendix I
COMMENTS FROM THE COMPTROLLER OF
THE CURRENCY
============================================================== Letter 



(See figure in printed edition.)




(See figure in printed edition.)Appendix II
COMMENTS FROM THE FEDERAL DEPOSIT
INSURANCE CORPORATION
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)

See comment on
p.  29. 



(See figure in printed edition.)

were scanned from color originals, which do not produce high-
quality, black-and-white copies. 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


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


   GAO COMMENT
------------------------------------------------------------ Letter :7

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


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Stephen C.  Swaim, Assistant Director (Retired)
Rose M.  Kushmeider, Senior Economist
Desiree Whipple, Communications Analyst

DALLAS FIELD OFFICE

Jeanne Barger, Issue Area Manager
John V.  Kelly, Evaluator-in-Charge

*** End of document. ***