Financial Institutions and Markets Issue Area Plan--Fiscal Years 1996-98
(Letter Report, 03/01/95, GAO/IAP-95-1).

GAO presented its Financial Institutions and Markets issue area plan for
fiscal years 1996 through 1998.

GAO noted that: (1) it plans to, in consultation with others, develop
issue area plans to direct its limited resources to the most important
issues of concern to Congress; (2) the Financial Institutions and
Markets issue area generally focuses on establishing a regulatory
framework for financial institutions and covers the federal agencies
that regulate and support the financial sector; (3) recent GAO reports
cover such issues as interstate banking, the credit card industry,
banks' insider lending activities, the Federal Home Loan Bank System,
the Farm Credit System, and the risks of financial derivatives to
individual firms and the financial system; and (4) the principal issues
include enhancing financial system efficiency, maintaining financial
system integrity, and facilitating choices about financial services.

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

 REPORTNUM:  IAP-95-1
     TITLE:  Financial Institutions and Markets Issue Area Plan--Fiscal 
             Years 1996-98
      DATE:  03/01/95
   SUBJECT:  Agency missions
             Regulatory agencies
             Audits
             Financial institutions
             Financial management
             Investigations by federal agencies
             Investigations into federal agencies
             Banking regulation
             Insurance regulation
             Securities regulation

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


General Government Division

March 1995

FINANCIAL INSTITUTIONS AND MARKETS
ISSUE AREA PLAN - FISCAL YEARS
1996-98

GAO/IAP-95-1



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


FOREWORD
============================================================ Chapter 0

The Financial Institutions and Markets issue area is one of the
General Accounting Office's 35 issue areas.  Relying heavily on
consultation with congressional committees, as well as with industry,
academia, agency officials and other experts on the issues, GAO
develops issue area plans to ensure that its limited resources are
directed toward the most important concerns of the Congress. 

For each issue area, GAO's strategic plan describes the significance
of the issues, our objectives, and the focus of our work.  GAO serves
as a source of timely, accurate information, and unbiased analysis
for decisionmakers in the Congress and executive agencies.  Our work
results in such products as reports, briefings, and testimonies. 

The Financial Institutions and Markets issue area does program and
performance evaluation work in the financial sector generally
focusing on establishing a regulatory framework for financial
institutions to act prudently while allowing for a robust,
competitive financial services industry.  The area covers the
Treasury Department, the Federal Reserve System, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the Securities and
Exchange Commission, the Commodity Futures Trading Commission, the
Office of Federal Housing Enterprise Oversight, the Farm Credit
Administration, and the National Credit Union Administration. 

GAO has recently issued reports examining interstate banking, the
credit card industry, banks' insider lending activities, the Federal
Home Loan Bank system, the Farm Credit System, and the risks of
financial derivatives to individual firms and the financial system. 

The principal issues in the financial institutions and markets area
are

  -- enhancing financial system efficiency,

  -- maintaining financial system integrity, and

  -- facilitating choices about financial services. 

The pages that follow describe key planned work on these pivotal
issues. 

Because events may significantly affect even the best of plans, our
planning process allows for updating the plan and responding quickly
to emerging issues.  If you have any questions or suggestions about
this plan, please call me at (202) 512-8678. 

James L.  Bothwell
Director
Financial Institutions and Markets


CONTENTS
============================================================ Chapter 1


   FOREWORD
---------------------------------------------------------- Chapter 1:1

1


   TABLE I:  KEY ISSUES
---------------------------------------------------------- Chapter 1:2

4


   TABLE II:  PLANNED MAJOR WORK
---------------------------------------------------------- Chapter 1:3

6


   TABLE III:  GAO CONTACTS
---------------------------------------------------------- Chapter 1:4

7


TABLE I:  KEY ISSUES
============================================================ Chapter 2

Issue                         Significance
----------------------------  --------------------------------------------------
Enhancing financial           Banks, insurers, and securities firms, stimulated
efficiency: How can the       by advances in technology and increased demands of
United States modernize the   savers and borrowers, are offering products and
regulatory framework to       services that cross traditional industry
effectively adapt to changes  demarcations. Expanding international financial
in, and enhance the           activity is also bringing new opportunities and
efficiency of, the financial  challenges to U.S. firms. Both the Congress and
system?                       regulators are reacting to these developments by
                              proposing changes to bring industry limits and
                              regulatory powers in line with the evolving
                              financial world.




Managing risks to maintain    The financial system provides products and
system integrity: How can     services to meet customers' needs in part by
the regulatory framework      placing individual firm capital at risk. Firms,
establish programs and        exchanges, and others develop risk management
policies that enhance risk    systems to better anticipate, monitor, and manage
management and maintain the   their risks. The task of the federal financial
safety, soundness, and        regulator is to monitor financial firms and the
integrity of the overall      management systems to minimize risk to the overall
financial system?             system. To perform this task effectively, the
                              regulatory structure needs to embody the proper
                              combination of market discipline and traditional
                              oversight.









Facilitating choices about    With increased competition and product
financial services: How can   proliferation in the financial sector, customers
the regulatory framework      face a bewildering array of financial services.
ensure that customers         Customers may not have the information necessary
receive services,             to compare competing financial products and do not
disclosure, and protection    necessarily have sufficient understanding to make
commensurate with their       rational financial decisions. The Congress and
financial situation and       financial regulators are faced with competing
sophistication?               demands to protect unwary buyers from abusive
                              sales practices and to minimize regulatory
                              burden.










--------------------------------------------------------------------------------

Objectives                                Focus of work
----------------------------------------  --------------------------------------
--Identify how efficiently financial      --Securitization policy
services such as savings, credit, and
payments are met by the evolving          --Effective and efficient clearance
financial products and the various        and payments systems
financial firms and government-
sponsored enterprises that supply them.   --Bank powers and industry
                                          demarcation: bank holding companies--
--Identify and evaluate legal or          who can do what with insured deposits;
regulatory provisions that impede         and banks affiliated with securities,
competition among suppliers of financial  insurance, and nonfinancial companies
services or the workings of the
marketplace to improve competition.       --Rationalized and consolidated
                                          supervision of financial firms in a
--Analyze the regulatory framework's      world of greater functional
ability to adapt so as to minimize        regulation
regulatory overlaps, gaps, or
inconsistencies under present and
proposed legal and regulatory
structures.

--Evaluate the effectiveness of risk-     --Risk-based capital as an incentive
based capital standards in improving the  to better management
safety and soundness of financial
institutions.                             --Alternative ways of
                                          structuring bank securities and other
--Identify and evaluate the effects of    nontraditional activities and
U.S. laws and regulations on the          managing and containing risk wherever
location (domestic vs. foreign) of        it is
financial activities and overall risks
to the U.S. financial system.             --Evaluation of bank, credit union,
                                          securities, insurance, and government-
--Evaluate federal regulators' efforts    sponsored-enterprise regulators' risk
to implement laws and develop methods or  management oversight
processes to control system risk and
ensure safety and soundness.              --Comparison of methods and approaches
                                          to measure and disclose value at risk
--Identify the types of information and   for financial firms
means of disclosure that will allow the
market and/or regulators to evaluate the
risk profile of a financial firm or
industry.


--Identify effective and efficient        --Regulatory or market impediments
regulatory approaches to facilitate       that hinder the system's ability to
consumers' ability to make informed       meet needs of
choices, including greater disclosure     small business
about financial products, fiduciary, and  minority entrepreneurs
suitability requirements imposed on       depressed areas
financial intermediaries.
                                          --Sales practices for over-the-
--Advise the Congress on the              counter and mortgage-backed
effectiveness of the implementation of    derivatives, structured notes, and
consumer protection laws.                 life insurance products

--Contribute to prevention of fraud and   --Functional comparisons of financial
market abuse by identifying patterns of   products
abusive practices to be restricted by
regulators.                               --Information necessary so customers
                                          can understand and monitor risk
--Identify ways to standardize
information available to customers to
facilitate comparisons.

--------------------------------------------------------------------------------

TABLE II:  PLANNED MAJOR WORK
============================================================ Chapter 3

Issue                      Planned major job starts
-------------------------  -----------------------------------------------------
Maintain financial system  --Analyses of the government's role in securitization
efficiency                 of assets

                           --Effects of increased privatization of clearance and
                           payments on the Federal Reserve's traditional role

                           --Analyses of the financial services holding company
                           structure to determine whether it is the best way of
                           organizing and regulating financial services
                           activity

                           --Regulatory consolidation of the Securities and
                           Exchange Commission/Commodity Futures Trading
                           Commission--Office of the Comptroller of the
                           Currency/Office of Thrift Supervision/Federal
                           Reserve/Federal Deposit Insurance Corporation

                           --Privatization of housing government-sponsored
                           enterprises--Freddie Mac and Fannie Mae



Maintain system integrity  --Implementation of prompt corrective action in
                           undercapitalized banks

                           --Analyses of asset-backed derivative and structured
                           note activity; oversight of government-sponsored
                           enterprises and risk-management issues

                           --Adequacy of mutual fund oversight

                           --Evaluation of stress test model for Fannie Mae and
                           Freddie Mac

                           --Cross-industry comparison of risk-based capital
                           standards and evaluation of alternative approaches

                           --Implications of clearance and settlement risks
                           inherent in growing international linkages between
                           financial markets

                           --Implications of removing separation between banking
                           and commerce



Facilitate financial       --Analyses of sales practices for over-the-counter
choices                    derivatives

                           --Analyses of sales practices for investment/life
                           insurance products

                           --Implications of similar financial products subject
                           to different disclosure and regulatory requirements
                           depending on the industry

                           --Adequacy of mutual fund risk and net asset value
                           disclosures


--------------------------------------------------------------------------------

TABLE III:  GAO CONTACTS
============================================================ Chapter 4


      DIRECTOR
-------------------------------------------------------- Chapter 4:0.1

James L.  Bothwell (202) 512-8678


      ASSOCIATE DIRECTORS
-------------------------------------------------------- Chapter 4:0.2

Helen H.  Hsing (202) 512-8678
Thomas J.  McCool (202) 512-8678


      ASSISTANT DIRECTORS
-------------------------------------------------------- Chapter 4:0.3

Michael A.  Burnett
Lawrence D.  Cluff
Mark J.  Gillen
William J.  Kruvant
Bernard D.  Rashes
Stephen C.  Swaim
Cecile O.  Trop
Kane A.  Wong


*** End of document. ***