The Results Act: Observations on Draft Strategic Plans of Five Financial
Regulatory Agencies (Testimony, 07/29/97, GAO/T-GGD-97-164).

Pursuant to a congressional request, GAO discussed the draft strategic
plans of the Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the
Currency, Office of Thrift Supervision, and the National Credit Union
Administration.

GAO noted that: (1) on the basis of its review of the draft plans, GAO
found that each plan contained most of the components required by the
Government Performance and Results Act; (2) three of the draft plans had
all six components, and two draft plans had five of the components; (3)
GAO's analysis of individual plan components showed that the plans had
mission statements that broadly defined the purpose of the agency and
goals and objectives that were somewhat results-oriented; (4) some
agencies had useful discussions of approaches and strategies to achieve
the goals and objectives, while others could have benefited from more
discussion of the resources needed; (5) each agency discussed key
external factors but only one discussed how those factors would affect
the achievement of its goals; (6) none of the draft plans discussed how
the external factors would be addressed; (7) in general, two sections
were most in need of improvement; (8) each agency could strengthen its
section on the relationship between strategic and annual goals by
explicitly discussing the link between the two types of goals; (9) also,
each agency could improve its section on how program evaluations were
used and a schedule for future evaluations; (10) because of the complex
set of factors that determine regulatory outcomes, measuring the impact
of a regulator agency's programs will be a difficult challenge going
forward; and (11) however, the use of program evaluations both to derive
results-oriented goals and to measure the extent those goals are
achieved is an important part of the process.

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

 REPORTNUM:  T-GGD-97-164
     TITLE:  The Results Act: Observations on Draft Strategic Plans of 
             Five Financial Regulatory Agencies
      DATE:  07/29/97
   SUBJECT:  Agency missions
             Strategic planning
             Program evaluation
             Congressional/executive relations
             Interagency relations
             Internal controls
             Regulatory agencies
             Banking regulation

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


Before the Committee on Banking and Financial Services
House of Representatives

For Release on Delivery
Expected at
10:00 a.m., EDT
on Tuesday
July 29, 1997

THE RESULTS ACT - OBSERVATIONS ON
DRAFT STRATEGIC PLANS OF FIVE
FINANCIAL REGULATORY AGENCIES

Statement of Thomas J.  McCool
Associate Director, Financial Institutions and Markets Issues
General Government Division

GAO/T-GGD-97-164

GAO/GGD-97-164T


(233530)


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

  FDIC - Federal Deposit Insurance Corporation
  CFO - Chief Financial Officers Act
  FFIEC - Federal Financial Institutions Examination Council
  GPRA - Government Performance and Results Act of 1993
  NCUA - National Credit Union Administration
  OCC - Office of the Comptroller of the Currency
  OMB - Office of Management and Budget
  OTS - Office of Thrift Supervision

THE RESULTS ACT:  OBSERVATIONS ON
DRAFT STRATEGIC PLANS OF FIVE
FINANCIAL REGULATORY AGENCIES
====================================================== Chapter Summary

Under the Government Performance and Results Act (GPRA or Results
Act), executive agencies are to develop strategic plans in which they
define their missions, establish results-oriented goals, and identify
strategies they will use to achieve those goals for the period 1997
through 2002.  The House Committee on Banking and Financial Services
asked GAO to provide its perspective on the draft plans of the Board
of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency, Office of
Thrift Supervision, and the National Credit Union Administration. 

On the basis of its review of the draft plans, GAO found that each
plan contained most of the components required by the Results Act. 
Three of the draft plans had all six components, and two draft plans
had five of the components. 

GAO's analysis of individual plan components showed that the plans
had mission statements that broadly defined the purpose of the agency
and goals and objectives that were somewhat results-oriented.  Some
agencies had useful discussions of approaches and strategies to
achieve the goals and objectives, while others could have benefitted
from more discussion of the resources needed.  Each agency discussed
key external factors but only one discussed how those factors would
affect the achievement of its goals.  None of the draft plans
discussed how the external factors would be addressed. 

In general, two sections were most in need of improvement.  Each
agency could strengthen its section on the relationship between
strategic and annual goals by explicitly discussing the link between
the two types of goals.  Also, each agency could improve its section
on how program evaluations were used and a schedule for future
evaluations.  Because of the complex set of factors that determine
regulatory outcomes, measuring the impact of a regulatory agency's
programs will be a difficult challenge going forward.  However, the
use of program evaluations both to derive results-oriented goals and
to measure the extent those goals are achieved is an important part
of the process. 


THE RESULTS ACT:  OBSERVATIONS ON
DRAFT STRATEGIC PLANS OF FIVE
FINANCIAL REGULATORY AGENCIES
==================================================== Chapter Statement

Mr.  Chairman and Members of the Committee: 

I am pleased to be here today to assist the Committee in its review
of the draft strategic plans of the five federal regulators of
depository institutions.  These consultations are a step in
implementing the Government Performance and Results Act of 1993 (GPRA
or Results Act) whose purpose is to reduce the cost and improve the
performance of the federal government. 

Mr.  Chairman, you asked that we provide analyses and observations
about the agencies' draft strategic plans, including the strengths
and weaknesses of each plan, the extent to which the agencies are
experiencing particular challenges that face regulatory agencies in
their attempts to measure performance, and any suggestions we might
have for improvements in these draft plans before they are finalized
and submitted to Congress in September. 

As its title indicates, the Results Act's focus is on results.  In
crafting the Act, Congress recognized that congressional and
executive branch decisionmaking had been severely handicapped in many
agencies by the absence of the basic underpinnings of well-managed
organizations.  These agencies lacked clear missions;
results-oriented performance goals; well-conceived agency strategies
to meet those goals; and accurate, reliable, and timely program
performance and cost information to measure progress in achieving
program results.  In recent years, Congress has established a
statutory framework for addressing these long-standing challenges and
for helping Congress and the executive branch make the difficult
trade-offs that are necessary for effective policymaking.\1 Improving
management in the federal sector will not be easy, but the Results
Act can assist in accomplishing this task. 

The Results Act seeks to shift the focus of federal management and
decisionmaking from a preoccupation with the number of tasks
completed or services provided to a more direct consideration of the
results of programs--that is, the real differences those tasks or
services make in citizen's lives.  As a starting point, the Results
Act requires executive agencies to complete--no later than September
30 of this year--strategic plans in which they define their missions,
establish results-oriented goals, and identify the strategies they
will use to achieve those goals for the period of 1997 through 2002. 
The Results Act requires agencies to consult with Congress and
solicit the input of others as they develop these strategic plans. 

Beginning with fiscal year 1999, executive agencies are then to use
their strategic plans to prepare annual performance plans.  These
performance plans are to include annual goals linked to the
activities displayed in budget presentations as well as to the
indicators the agency will use to measure performance against the
results-oriented goals.  Agencies are subsequently to report each
year on the extent to which these goals were met, provide an
explanation if these goals were not met, and present the actions
needed to meet any unmet goals. 

Congress can use the Results Act to provide the vital information
that it needs to better make decisions.  The congressional
consultations on agencies' strategic plans provide an important
opportunity for Congress and the executive branch to work together to
ensure that agencies' missions are focused, goals are
results-oriented and clearly established, and strategies and funding
expectations are appropriate and reasonable. 

One of the reasons we are here today is to provide our perspective on
these plans.  We note that, although these strategic plans are not
due until September, each agency we reviewed had prepared a draft
plan.  Overall, we found that each agency had made an effort to
adhere to the Results Act, and we recognize that agency officials are
still in the process of updating and revising the draft plans. 

In response to your request, we reviewed the draft plans submitted by
the Board of Governors of the Federal Reserve System (Board), the
Federal Deposit Insurance Corporation (FDIC), the Office of the
Comptroller of the Currency (OCC), the Office of Thrift Supervision
(OTS), and the National Credit Union Association (NCUA).  For each
agency, we specifically determined whether the draft plan contained
each of the six components required by the Results Act and assessed
the components' strengths and weaknesses.\2 We also determined
whether key statutory authorities were reflected in the agencies'
draft plans and identified whether the plans addressed major
management challenges and included indications of interagency
coordination. 

On the basis of our review of the draft plans, we found that each
plan contained most of the components required by the Results Act. 
Three of the draft plans had all six components, and two draft plans
had five of the components.  In general, the draft plans reflected
the statutory authorities and responsibilities of the federal
regulators with respect to the institutions and matters within their
jurisdictions.  On the whole, the draft plans showed little evidence
of interagency coordination. 

Our analysis of individual plan components showed that the draft
plans had mission statements that broadly defined the purpose of the
agency and goals and objectives that were somewhat results-oriented
and appropriate to the agency's mission.  The content of other
components varied across agencies.  For example, some agencies had
useful discussions of approaches and strategies to achieve the goals
and objectives, while others could have benefitted from more
discussion of the resources needed.  Each agency discussed key
external factors but only one discussed how those factors would
affect the achievement of its goals.  None of the plans discussed how
the external factors would be addressed. 

In general, two sections were most in need of improvement.  Each
agency could strengthen its section on the relationship between
strategic and annual goals by explicitly discussing the link between
these two types of goals.  Also, each agency could improve its
section on how program evaluations were used and a schedule for
future evaluations.  Due to the complex set of factors that determine
regulatory outcomes, measuring the impact of a regulatory agency's
programs will be a difficult challenge going forward.  However, the
use of program evaluations both to derive results-oriented goals and
to measure the extent those goals are achieved is a key part of the
process. 

Our overall assessment of each agency's draft plan was generally
based on our knowledge of that agency's operations and programs, our
past and ongoing reviews of that agency, and other existing
information available at the time of our assessment.  Specifically,
the criteria we used to determine whether each draft plan complied
with the requirements of the Results Act were the Results Act itself
and the Office of Management and Budget's (OMB) guidance on
developing the plans (OMB Circular A-11, Part 2).  To make judgments
about the overall quality of the draft plans and their components, we
used our May 1997 guidance\3 for congressional review of the plans as
a tool.  To determine whether the draft plan contained information on
interagency coordination and addressed management problems we had
previously identified, we relied on our general knowledge of each
agency's operations and programs and the results of our previous
work. 

The requirements of the Results Act and OMB guidance indicate that
the following factors should be addressed within the six components
of strategic plans: 

(1) The comprehensive mission statement should

  -- be brief and define the basic purpose of the agency and

  -- focus on core programs and activities. 

(2) The description of general goals and objectives should

  -- contain general goals and objectives for the major functions and
     operations of the agency,

  -- elaborate on how the agency is carrying out its mission,

  -- contain a number of outcome-type goals, and

  -- be stated in a manner that allows a future assessment to be made
     on whether the goals are being achieved. 

(3) The description of how the general goals and objectives will be
achieved is to

  -- include discussion of operational processes, staff skills, and
     technologies as well as the human, capital, information, and
     other resources that are needed to achieve the goals and
     objectives and

  -- outline how the agency will communicate strategic goals
     throughout the organization and hold managers and staff
     accountable for achieving these goals. 

(4) A strategic plan is to describe how the performance goals
included in the agency's annual performance plans are related to the
goals and objectives in its strategic plan. 

(5) A strategic plan is to identify and discuss key factors external
to the agency and beyond its control, which could occur during the
time periods covered by the plan and significantly affect the
agency's achievement of its strategic goals.  The plan is to

  -- briefly describe each key external factor,

  -- indicate its link with a particular strategic goal or goals, and

  -- describe how the factor could affect the achievement of the
     goals. 

(6) Program evaluations--objective and formal assessments of the
results, impact, or effects of a program or policy--are to include
assessments of the implementation and results of programs, operating
policies, and practices.  The plan's program evaluation section
should briefly describe

  -- program evaluations that were used in preparing the strategic
     plan;

  -- evaluation methodologies, scopes, and issues addressed; and

  -- a schedule for future evaluations. 


--------------------
\1 This framework includes as its essential elements the Chief
Financial Officers Act (CFO); information technology reform
legislation, including the Paperwork Reduction Act of 1995 and the
Clinger-Cohen Act; and the Results Act.  The CFO Act was expanded and
amended by the Government Management Reform Act. 

\2 The Results Act specifies that agencies' strategic plans should
have the following critical components:  (1) a comprehensive agency
mission statement; (2) agencywide long-term goals and objectives for
all major functions and operations; (3) approaches (or strategies) to
achieve the goals and objectives and the various resources needed;
(4) the relationship between the long-term goals/objectives and the
annual performance plans required by the Act; (5) an identification
of key factors, external to the agency and beyond its control, that
could significantly affect the achievement of the strategic goals;
and (6) a description of how program evaluations were used to
establish and revise strategic goals and a schedule for future
program evaluations. 

\3 Agencies' Strategic Plans Under GPRA:  Key Questions to Facilitate
Congressional Review (GAO/GGD-10.1.16, May 1997). 


   DRAFT STRATEGIC PLANS GENERALLY
   CONTAINED MOST MAJOR COMPONENTS
-------------------------------------------------- Chapter Statement:1

As shown in figure 1, each of the agencies' draft plans that we
reviewed contained most of the six required components of the Results
Act.  Our assessment of whether the plans' components met the
requirements of the Act follows the figure. 

   Figure 1:  Inclusion of
   Strategic Plan Components in
   Selected Agencies' Draft Plans

   (See figure in printed
   edition.)

Source:  GAO analysis. 


      THE BOARD'S DRAFT STRATEGIC
      PLAN
------------------------------------------------ Chapter Statement:1.1

The Board developed a plan that had section titles addressing all of
the components required by the Act.  The Board did not designate a
time frame for its draft plan. 

  -- The mission statement was brief and focused on core programs and
     activities.  The mission statement covered the Board's
     responsibilities for conducting monetary policy, maintaining the
     stability of financial markets, providing services to financial
     institutions and government agencies, and supervising and
     regulating banks and bank holding companies. 

  -- The draft plan's section of goals and objectives had few
     outcome-oriented goals and objectives, which described the
     intended result, effect, or consequence that will occur from
     carrying out a program or activity.  Some goals and objectives
     were stated in a manner that will not facilitate future
     assessment. 

  -- The draft plan had a limited description of how the goals and
     objectives are to be achieved.  The section referred to another
     Board document that detailed various organizational units and
     their staffing, budget, and objectives.  The section also noted
     that specific organizational divisions are oriented toward
     meeting specific goals and objectives.  In spite of this detail,
     the draft plan and associated documents were unclear on how the
     plan's goals and objectives were to be achieved and also unclear
     on what specific processes, technologies, and resources were to
     be used.  In addition, the draft plan did not outline the
     process for communicating the goals and objectives through the
     agency and for assigning accountability to managers and staff
     for achievement of the goals and objectives. 

  -- The draft plan had little discussion of the relationship between
     the strategic goals and annual performance goals.  Instead of
     describing the type, nature, and scope of performance goals, the
     draft plan focused on information generated by its budget
     process.  Board budget documents tended not to include
     performance goals that target a measurable level of performance
     against which actual achievement can be compared. 

  -- The draft plan outlined several key external factors and
     challenges, including blurred lines between banks and nonbanks,
     globalization and financial markets, and competition for the
     provision of payment services.  The draft plan also highlighted
     internal challenges, including the need for a larger proportion
     of "knowledge" workers, technological changes, and a
     decentralized organizational structure.  However, the draft plan
     did not describe how external factors were linked with
     particular goals or how achievement of a goal could be affected
     by external factors. 

  -- The draft plan did not clearly describe how program evaluations
     were used and a schedule for future evaluations.  This section
     referenced Board documents developed for various planning,
     budgeting, and reporting purposes--including monetary policy
     reports to Congress, Inspector General reports, annual
     evaluations of bank plans and programs, and an annual
     performance report covering Board expenses and staffing. 
     Although the annual performance report described program
     accomplishments, the report was not outcome-oriented.  We did
     not review other documents referred to in the draft plan;
     therefore, we are unable to comment on whether the documents had
     outcome-oriented measures and performance goals or whether they
     could measure achievement of intended objectives.  The draft
     plan did not include a schedule for future program evaluations,
     outlines of methodologies used, descriptions of evaluation
     scope, or details about particular issues to be addressed. 


      FDIC'S DRAFT STRATEGIC PLAN
------------------------------------------------ Chapter Statement:1.2

The FDIC's draft plan had sections addressing each component required
by the Act.  The time frame covered by FDIC's draft was from 1997 to
2002. 

  -- The draft mission statement briefly defined the basic purpose of
     FDIC, which is to maintain stability and public confidence in
     the nation's banking system. 

  -- The goals and objectives set forth in the draft plan were
     supportive of FDIC's mission and were results-oriented.  For
     instance, one of the goals of FDIC's draft plan was to identify
     and address risk to the deposit fund by (1) reporting current
     and emerging risks to the deposit fund and (2) ensuring that the
     risk-based premium system appropriately reflects risks to
     insurance funds. 

  -- FDIC's presentation of approaches and strategies to achieve the
     goals and objectives described the objectives as well as the
     strategies and major initiatives that it planned to use to meet
     each of its goals.  However, although FDIC generally described
     the processes to implement its strategies and major initiatives,
     it provided little discussion of the resources needed.  For
     instance, under the strategies and major initiatives for the
     goal to "minimize costs to the insurance funds from failing
     financial institutions," FDIC discussed its major effort of
     focusing on "maintaining a highly trained, mobile staff" but did
     not state what resources would be needed.  FDIC's draft plan had
     a section on resource strategies, but the section was not
     specifically linked to the goals. 

  -- The component relationship between strategic goals and annual
     performance goals in FDIC's draft plan did not discuss the
     relevance and use of the performance measures in helping to
     determine the achievement of the goals and objectives.  For
     instance, under each goal and objective, FDIC simply listed the
     annual performance measures that related to the goals and
     objectives and did not discuss how the listed performance
     measures would demonstrate the progress made in achieving the
     goals and objectives. 

  -- FDIC's draft plan discussed some key external factors that could
     affect the achievement of its goals and objectives.  These key
     external factors included the effect of the following:  (1)
     domestic and international economic performance and (2) certain
     legislative initiatives--that is, the merger of the Bank
     Insurance Fund and the Savings Association Insurance Fund and
     the resolution of differences in statutory and regulatory rules
     governing banking and thrift industries.  Also, FDIC's draft
     plan reviewed several internal factors, including those related
     to financial accountability, organizational, and human resource
     issues.  However, the link between key internal and external
     factors and particular goals and objectives was not described,
     and it was unclear whether and how key factors would influence
     goal achievement. 

  -- FDIC's draft plan did not describe how program evaluations were
     used and a schedule for future evaluations.  FDIC cited a
     quarterly performance reporting process, GAO and Inspector
     General reports, cost-benefit analyses, surveys of stakeholders,
     and other processes.  However, the extent to which these reports
     and processes had been or would be used to develop or revise
     goals and objectives is unclear.  Also, although the plan made
     reference to quarterly and ongoing program evaluation, the draft
     plan did not include a schedule for future program evaluations. 


      OCC'S DRAFT STRATEGIC PLAN
------------------------------------------------ Chapter Statement:1.3

OCC's draft plan discussed all six components required by the Results
Act.  The time frame covered by OCC's draft plan was from 1997 to
2002. 

  -- The draft plan's mission statement broadly defined the basic
     purpose of the agency, which is to charter, regulate, and
     supervise national banks. 

  -- The goals and objectives were results-oriented and seemed
     appropriate to meet the agency's mission.  For instance, one of
     OCC's goals was to improve the efficiency of bank supervision
     and reduce the burden on banks by streamlining supervisory
     procedures and regulations. 

  -- The approaches and strategies to achieve the goals and
     objectives, while not under the section labeled "description of
     how general goals and objectives are to be achieved," were
     discussed to some extent in the draft plan under the seven
     objectives that OCC designed to meet its four goals.  The
     objectives generally described the processes needed to meet
     goals.  However, most of the objectives did not include a
     description of the resources OCC will need to meet the
     objectives and goals. 

  -- The draft plan outlined performance goals to be included in the
     annual performance plan as an effort to address the component
     relationship between strategic goals and annual performance
     goals.  For instance, the draft plan listed some output-related
     performance measures.  However, the plan did not relate these
     measures to the goals.  In addition, the plan lacked specific
     performance measures for some of the goals, such as promoting
     competition and ensuring fair access to financial services. 

  -- The draft plan identified some key external factors that could
     affect the achievement of the goals and objectives, and also
     provided a link as to how these factors might affect the
     achievement of the goals and objectives.  These factors included
     the following:  industry consolidation, electronic money and
     banking activities, and competitive environment changes. 

  -- The draft plan included a section on program evaluation, but the
     plan neither discussed how evaluations were used nor included a
     schedule for future evaluations that outlined the general
     methodology used, a timetable, or the scope of evaluations. 


      OTS' DRAFT STRATEGIC PLAN
------------------------------------------------ Chapter Statement:1.4

In its draft plan, OTS discussed five of the six components required
by the Results Act.  The time frame covered by OTS' draft plan was
from 1997 to 2002. 

  -- The draft mission statement stated that OTS was to effectively
     and efficiently supervise thrift institutions; to maintain the
     safety, soundness, and viability of the industry; and to support
     industry efforts to meet housing and other community credit and
     financial services needs. 

  -- The draft goals and objectives appeared to lay out a general
     strategy to meet the agency's overall mission.  However, the
     draft plan did not always state the goals and objectives in a
     way to allow for a future assessment of whether the goals would
     be achieved.  For instance, OTS stated that one way to meet its
     goal to "improve credit availability by encouraging safe and
     sound lending in those areas of greatest need," was to "measure
     the degree to which the defined tasks of the OTS Community
     Affairs Program are met in any given year."\4 Yet, the draft
     plan neither clearly stated what tasks were to be performed nor
     linked how the accomplished tasks could ensure that the overall
     credit availability could be improved in the areas of greatest
     need. 

  -- Although the draft plan identified general approaches and
     strategies to achieve the goals and objectives, it did not
     describe the resources required to achieve each goal and
     objective.  Also, the draft plan did not establish time frames
     to accomplish each goal and objective. 

  -- The relationship between strategic goals and annual performance
     goals was not specifically discussed in the draft plan. 
     However, the relationship between strategic goals and annual
     performance goals was described in a separate performance plan. 
     For instance, to achieve the goal to "maintain and enhance a
     risk-focused .  .  .  approach to supervising thrift
     institutions," the performance plan suggested ways in which OTS
     could improve the value and consistency of examinations.  The
     performance plan also identified measures to accomplish these
     tasks. 

  -- The draft plan discussed three key external factors that could
     affect OTS' accomplishment of its goals:  (1) the performance of
     the U.S.  economy, (2) the status of legislation to modernize
     the financial services industry, and (3) major interindustry
     consolidations.  However, OTS did not link each factor to a
     particular goal or discuss how each factor might affect OTS'
     success in meeting its goals and objectives. 

  -- The draft plan discussed how program evaluations were used in
     preparing the strategic plan.  Program evaluations were used to
     establish goals and objectives, but there was no schedule for
     future evaluations. 


--------------------
\4 The Community Affairs Program was established to emphasize
community reinvestment, nondiscrimination in lending, and other
consumer-oriented goals for thrift institutions. 


      NCUA'S DRAFT STRATEGIC PLAN
------------------------------------------------ Chapter Statement:1.5

NCUA's draft plan contained sections on all but one of the six
components.  The time frame covered by NCUA's draft plan was from
1997 to 2002. 

  -- The mission statement of the draft plan was concise and defined
     the core responsibilities of the agency, which included
     maintaining the safety and soundness of the nation's credit
     unions. 

  -- The goals and objectives section of the draft plan set forth six
     strategic goals and objectives that appeared to be generally
     supportive of the agency's mission statement and were stated in
     a results-oriented manner.  For example, one of the goals was to
     "protect member savings in federally insured credit unions, thus
     preserving federal taxpayer funds."

  -- The draft plan provides a detailed description of the agency's
     approaches and strategies to achieve the goals and objectives as
     well as a discussion of the resources needed to accomplish the
     goals and objectives.  For instance, NCUA planned to use the
     Community Development Revolving Loan Program\5 to achieve its
     goal to "promote the availability of financial services to
     people of small means."

  -- The draft plan did not have a specific section on the
     relationship between strategies and annual performance goals. 
     However, the program evaluation section identifies specific
     performance measures and lists them under the goals and the
     objectives in the strategic plan.  There is no discussion of the
     relationship between the measures and the goals. 

  -- The draft plan identified several key external factors that
     could affect the achievement of NCUA's mission.  The four
     factors cited were future economic downturns, the effects that
     rapid technological advancement could have on the credit union
     industry, a legal challenge before the United States Supreme
     Court facing NCUA, and the possibility that credit unions may
     lose their congressionally mandated tax-exempt status.  The
     draft plan stated that a dramatic downturn in the economy could
     have a negative impact on components of its annual performance
     plan, although it did not explain how key external factors could
     specifically affect NCUA's achievement of its goals and
     objectives.  Finally, the draft plan indicated that a loss in
     its court challenge or a loss of its tax-exempt status could
     have a negative impact on the safety and soundness of the
     nation's credit unions. 

  -- Although the draft plan had a section entitled "Program
     Evaluations," it neither discussed how program evaluations were
     used to develop the strategic plan nor did it contain a schedule
     for future program evaluations.  Instead, the section contained
     information on the performance measures linked to the strategic
     goals and objectives. 


--------------------
\5 The Community Development Revolving Loan Program consists of
congressional appropriated funds that are to be made available to
qualifying credit unions serving predominately low-income members and
those financially underserved. 


   STATUTORY AUTHORITIES AND
   RESPONSIBILITIES GENERALLY WERE
   REFLECTED IN THE FEDERAL
   REGULATORS' STRATEGIC PLANS
-------------------------------------------------- Chapter Statement:2

Generally speaking, each draft plan reflected the statutory
authorities and responsibilities of the federal regulator with
respect to institutions and matters within its jurisdiction.  This
reflected the comprehensive nature of federal regulation of insured
depository institutions and the nation's financial system.  The
federal regulatory agencies are charged with chartering or otherwise
certifying the fitness of an institution to conduct business and (1)
examining, (2) supervising, and (3) otherwise regulating institutions
with respect to a broad range of complicated matters that include
safety and soundness, consumer protection, and credit access.  In
addition, the Board is responsible for monetary policy and the
nation's payments system. 


   DRAFT AGENCY PLANS RARELY
   DISCUSSED INTERAGENCY
   COORDINATION EFFORTS
-------------------------------------------------- Chapter Statement:3

There is a potential for various coordination problems among the
Board, FDIC, OCC, OTS, and NCUA, yet only one of the draft plans
indicated that coordination issues had been considered.  All of these
agencies have similar oversight responsibilities for developing and
implementing regulations, conducting examinations and off-site
monitoring, and taking enforcement actions for those institutions
that are under their respective purview.  We previously have reported
that regulators, banking officials, and analysts believe that the
multiplicity of regulators has resulted in inconsistent treatment of
banking and thrift institutions in examinations, enforcement actions,
and regulatory decisions.\6

In our November 1996 report, we also noted that Congress and
regulatory agencies have taken some actions to improve interagency
coordination.  For instance, Congress created the Federal Financial
Institutions Examination Council (FFIEC) in 1979--comprised of the
Board, FDIC, OCC, OTS, and NCUA--to promote consistency among these
agencies, primarily in the area of financial examinations.  In
addition, since June 1993, the Board, FDIC, OCC, and OTS have
operated under a joint policy statement that was designed to improve
coordination and minimize duplication in examination. 

However, the regulatory agencies' draft plans that we reviewed did
not discuss how they planned to coordinate with each other in the
future and only one mentioned the need for future coordination. 
Moreover, the draft plans did not refer to the possibility of future
coordination activities involving FFIEC. 


--------------------
\6 Bank Oversight Structure:  U.S.  and Foreign Experience May Offer
Lessons for Modernizing U.S.  Structure (GAO/GGD-97-23, Nov.  1996). 


   EXTERNAL FACTORS WILL PRESENT
   ISSUES FOR REGULATORS
-------------------------------------------------- Chapter Statement:4

Although mentioned in the draft plans of some of the affected
regulators, there are a number of common external factors that will
present issues to these agencies.  Because these issues are
significant and likely to affect each of the agencies to some extent,
their strategic plans could be more useful to the agencies, Congress,
and other stakeholders if these challenges were more fully discussed
in the plans.  The issues include electronic innovation, new
approaches to supervisory oversight, pending legislation on financial
modernization, and consolidation in the financial services industry. 

For example, electronic innovation, both in the way transactions are
conducted and in the way information is transmitted, represents a
regulatory challenge for all five regulators.  The regulators have
generally adopted a wait-and-see approach to this policy because they
do not want to interfere with the pace or determine the direction of
change.  However, deciding if and when this policy should be altered
and how regulation might be applied to electronic "banking"
represents a major challenge. 

The Board, FDIC, OCC, and OTS have all announced the intention of
shifting their supervisory focus toward early detection of unsafe and
unsound practices, rather than simply reacting to what the
institutions do.  OCC and the Board have announced new examination
procedures to better monitor and control bank risk-taking by
evaluating an institution's risk exposure and the quality of its risk
management systems.  In addition, FFIEC has revised the rating system
used for examining financial institutions by adding an additional
risk factor and increasing the emphasis on the quality of risk
management. 

Another issue facing all three bank regulators and OTS is the
potential impact of legislation currently being considered to
modernize the financial services industry.  Provisions currently
being considered by Congress could have far-ranging impact on each of
the regulators.  For example, the elimination of the federal thrift
charter and merger of OTS with OCC could affect all three bank
regulators and OTS in terms of (1) workload, if thrifts are allowed
to choose between a federal or state charter, and (2) supervisory
focus, if the balance sheet structure of thrifts remains different
from that of banks. 

Ongoing financial consolidation, in part related to interstate
banking and branching could also have important implications for the
structure of the bank regulators.  Each of these regulators has
traditionally had a regional structure that has more or less evolved
over time.  As more and more banks become multiregional or even
national institutions, the old regional structure may become less
relevant and a fundamental shift in geographical focus may be in
order.  OCC has recently announced a reorganization, which is at
least partially due to the anticipated effects of interstate banking. 

The Federal Reserve System, due to its broader mandate and unique
structure, faces its own set of challenges.  For example, an
increased use of electronic payments in services provided to the
Department of the Treasury and other agencies may result in
realignments or reductions in certain staff at particular reserve
banks.  These and other challenges may, in turn, raise questions
about the structure of the Federal Reserve System, such as the size,
number, and location of the Federal Reserve banks. 


   CHALLENGES FACED BY OTHER
   REGULATORY AGENCIES ALSO APPLY
   TO DEPOSITORY INSTITUTION
   REGULATORS
-------------------------------------------------- Chapter Statement:5

In enacting the Results Act, Congress realized that the transition to
results-oriented management would not be easy.  The difficulties in
moving to results orientation could be especially difficult for a
regulatory agency.  We analyzed a set of barriers facing certain
regulatory agencies in their efforts to implement the Results Act in
a June 1997 report.\7 These barriers included the following:  (1)
problems collecting performance data, (2) complexity of interactions
and lack of federal control over outcomes, and (3) results realized
only over long time frames. 

At least to some extent, each of these barriers is also applicable to
federal regulators of depository institutions.  For example, in
focusing on the safety and soundness of depository institutions any
measure (such as the average capital to risk-based asset ratio or the
number of failed institutions) would be largely determined by overall
economic conditions, rather than any particular regulatory
intervention strategy.  Finding approaches that could effectively
disentangle regulatory intervention from the myriad of other forces
influencing outcomes represents a difficult challenge for all of
these agencies as they pursue results-oriented measurement. 

Long time lags between actions and possible results could also be an
issue for regulators of depository institutions.  Historically, there
has been a considerable time lag between the time that a financial
institution makes a questionable underwriting decision and the time
that a loan goes bad and finally affects earnings and eventually bank
capital, thereby potentially threatening the institution's existence. 
Effective intervention by a regulator may also not show a result, at
least not by many standard measures, for an extended period.  This
argues for constructing sophisticated measures that can account for
long time lags and that are evaluated over a period longer than a
year. 

Mr.  Chairman, one of the most difficult challenges facing these
agencies, as implementation of the Results Act proceeds, will be
separating a program's impact on the agency's objectives from the
impact of external factors that are often outside the program or
agency's control.  Although developing performance measures or
evaluating program impact is difficult in these situations, it is
important that agencies make efforts toward that end.  We note that
all the agencies' plans we reviewed had one section that consistently
was in need of development:  the discussion of how program
evaluations were used to establish goals and how such evaluations
might be used in the future. 

In a recent report on the agencies that piloted the use of the
Results Act and their use of program evaluations, we found that
almost all had access to staff trained or experienced in performance
measurement or program evaluation and that this training and
experience proved very helpful in the agencies' attempts to implement
performance measurement.\8 Most of the agencies whose draft plans we
reviewed have research capability and in some cases a substantial
research staff.  Such analytical resources provide a potential source
for researching and developing innovative methods for measuring
results.  Any new methods or research approaches developed by one
agency could also be useful to others because, at least in the areas
of supervision and regulation, there are many similarities in the
activities undertaken by these agencies. 


--------------------
\7 Managing for Results:  Regulatory Agencies Identified Significant
Barriers to Focusing on Results (GAO/GGD-97-83, June 24, 1997). 

\8 Managing for Results:  Analytic Challenges in Measuring
Performance (GAO/HEHS/GGD-97-138, May 30, 1997). 


------------------------------------------------ Chapter Statement:5.1

This concludes my prepared statement.  I would be pleased to respond
to any questions you or other members of the Committee may have. 


*** End of document. ***