Financial Institutions and Markets Issue Area Plans: Fiscal Years 1997-98
(Other Written Prod., 05/01/96, GAO/IAP-96-11).

GAO presented its Financial Institutions and Markets issue area plan for
fiscal years 1997 through 1998.

GAO plans to: (1) identify how financial institutions, markets, and
regulatory agencies respond to the changing demands and technological
advances of the global marketplace; (2) evaluate existing laws' impact
on market efficiency, competition, and U.S. financial institutions; (3)
improve the regulatory framework of domestic and international financial
systems; (4) evaluate the effectiveness of risk-based capital standards
in improving the safety and soundness of financial institutions; (5)
evaluate federal regulators' efforts to implement risk management
techniques; (6) provide consumers with necessary information on
competing financial products; and (7) identify those practices that
contribute to fraud and market abuse.

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

 REPORTNUM:  IAP-96-11
     TITLE:  Financial Institutions and Markets Issue Area Plans: Fiscal 
             Years 1997-98
      DATE:  05/01/96
   SUBJECT:  Financial institutions
             Banking regulation
             Financial management
             Bank failures
             Globalization
             Risk management
             Securities regulation
             Information disclosure
             Securities fraud
             Auditing standards

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


General Government Division

May 1996

FINANCIAL INSTITUTIONS AND MARKETS
ISSUE AREA PLANS - FISCAL YEARS
1997-98

GAO/IAP-96-11



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


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

As the investigative arm of Congress and the nation's auditor, the
General Accounting Office is charged with following the federal
dollar wherever it goes.  Reflecting stringent standards of
objectivity and independence, GAO's audits, evaluations, and
investigations promote a more efficient and cost-effective
government; expose waste, fraud, abuse, and mismanagement in federal
programs; help Congress target budget reductions; assess financial
information management; and alert Congress to developing trends that
may have significant fiscal or budgetary consequences.  In fulfilling
its responsibilities, GAO performs original research and uses
hundreds of databases or creates its own when information is
unavailable elsewhere. 

To ensure that GAO's resources are directed toward the most important
issues facing Congress, each of GAO's 32 issue areas develops a
strategic plan that describes the significance of the issues it
addresses, its objectives, and the focus of its work.  Each issue
area relies heavily on input from congressional committees, agency
officials, and subject-matter experts in developing its strategic
plan. 

The Financial Institutions and Markets issue area is one of 32 issue
areas.  Relying heavily on consultation with congressional
committees, as well as with industry, academia, and agency officials
and other experts knowledgeable of the issues, GAO develops strategic
plans to ensure that its limited resources are directed at the most
important issues of concern to the Congress.  The Financial
Institutions and Markets issue area covers 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, the National Credit Union Administration,
the Federal Housing Finance Board, and those parts of the Treasury
Department that are charged with oversight of financial institutions
and markets. 

GAO's program evaluation and performance work in the financial sector
generally focuses on assessing the ability of the regulatory
framework to maintain safety and soundness, financial stability, and
investor protection, while allowing for a robust and competitive
financial services industry.  Recently, GAO has issued reports
examining the Community Reinvestment Act, the role of foreign banks
in the U.S.  banking system, SEC and CFTC enforcement programs, bank
securities activities, bank mutual fund sales, and the bank
regulatory structures of France and Canada. 

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. 

In the pages that follow, we describe our key planned work on these
pivotal issues. 

Because events may significantly affect even the best of plans and
because periodic measurement of success against any plan is
essential, our planning process allows for updating and the
flexibility to respond 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           Financial institutions and markets, responding to
efficiency: How can the       the changing demands of investors and savers as
United States modernize its   well as advances in information and communications
regulatory framework to       technology, have evolved beyond the traditional
enhance efficiency and adapt  industry and geographic boundaries of the past. In
to changes in the domestic    particular, the continuing development of a global
and international financial   financial system has presented new challenges and
system?                       opportunities for U.S. banks, insurers, and
                              securities firms. Existing regulatory policies and
                              programs have not always kept pace with this
                              dynamic, global marketplace. In response to these
                              developments, both Congress and the regulatory
                              agencies have proposed changes to the regulatory
                              framework that would bring industry limits and
                              powers in line with the evolving financial world.

Managing risks to maintain    The functioning of our economy depends on the
system integrity: How can     provision by the financial system of products and
the regulatory framework      services that entail the management or
establish programs and        intermediation of risk. A task of the federal
policies that enhance risk    regulatory authorities is to permit risk-taking
management and maintain the   while protecting against events that could disrupt
safety, soundness, and        the functioning of the system. To perform this
integrity of the global       task effectively, the regulatory authorities
financial system?             should foster market discipline but rely as
                              necessary on monitoring, regulation, and
                              enforcement.





Facilitating choices about    Competition, product proliferation, and the
financial services: How can   arrival of electronic commerce have provided
the regulatory framework      customers with an array of financial services.
ensure that customers         Customers have come to rely on the marketplace to
receive appropriate           ensure they receive services, disclosure, and
services, disclosure, and     protection. However, customers may lack
protection?                   information necessary to compare competing
                              financial products and may lack sufficient and
                              necessary information to make rational financial
                              decisions. Congress and regulators face the
                              competing demands of ensuring customers are
                              protected and minimizing regulatory burden.

--------------------------------------------------------------------------------
Objectives                                          Focus of work
--------------------------------------------------  ----------------------------
(1) Identify how financial institutions, markets,   Rationalized and
and regulatory agencies are responding to the       consolidated supervision of
changing demands and technological advances of a    financial firms
dynamic, global marketplace.                        --with expanded powers
                                                    --in international markets
(2) Evaluate existing/proposed laws and
regulations in terms of their impact on market      Effective and efficient
efficiency, competition, and the relative           clearance and payments
international position of U.S. financial firms.     systems

(3) Analyze proposals to modernize the regulatory   Evaluation of risk-based
framework and improve regulatory efficiency in the  capital
context of an evolving domestic and international   --across industries
financial system.                                   --across nations





(1) Evaluate the effectiveness of risk-based        Evaluation of financial
capital standards in improving the safety and       institutions regulators'
soundness of financial institutions.                risk management oversight

(2) Evaluate federal regulators' efforts to         International coordination
implement laws and develop methods or processes to  among
control system risk and ensure safety and           --futures exchange
soundness.                                          regulators
                                                    --bank regulators
(3) Identify the types of information and means of
disclosure that will allow the market and/or        Appropriateness and
regulators to evaluate the risk profile of a        effectiveness of self-
financial firm or industry.                         regulatory organizations



(1) Identify effective and efficient regulatory     Information necessary so
approaches to facilitating consumers' ability to    customers can understand and
make informed choices, emphasizing accurate and     monitor risk
comparable disclosure about financial products.
                                                    Improving usefulness of
(2) Contribute to prevention of fraud and market    disclosure
abuse in part by identifying patterns of abusive
practices to be restricted by regulators.


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

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

Issue                    Planned major job starts
-----------------------  -------------------------------------------------------
Financial system         --Effects of abolishing the thrift charter and merging
efficiency               the Office of Thrift Supervision in the Office of the
                         Comptroller of the Currency

                         --Adequacy of supervision of overseas activities of
                         U.S. banks

                         --Analysis of risk-based capital and its effects on
                         business incentives

                         --Evaluation of oversight of the internationalization
                         of equity markets--24-hour global trading

                         --Review the implementation of requirement to complete
                         securities transactions in 3 days--T+ 3 settlement
                         changes



Maintain system          --Analyses of the operations and oversight of self-
integrity                regulatory organizations

                         --Comparison of new risk management approach to
                         supervision with current approach

                         --Evaluation of international coordination of futures
                         exchange regulators

                         --Adequacy of mutual fund oversight

                         --Evaluation of risk measurement model for Fannie Mae
                         and Freddie Mac

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



Facilitating financial   --Analyses of regulation of electronic banking and
choices                  protection provided customers

                         --Evaluation of the implementation of Government
                         Securities Act

                         --Mutual funds risk controls and disclosure issues


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

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


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

James L.  Bothwell (202) 512-8678


      ASSOCIATE DIRECTOR
-------------------------------------------------------- Chapter 4:0.2

Thomas J.  McCool (202) 512-8678


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

Michael Burnett
Lawrence Cluff
William Shear
Cecile Trop
Susan Westin
Kane Wong


      BANKING EXPERT
-------------------------------------------------------- Chapter 4:0.4

John Treanor

*** End of document. ***