prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: Banks play a central role in the financial system by connecting borrowers to savers and allocating available funds across the economy  As a result, banking is vital to the U S  economy's health and growth  Nevertheless, banking is an inherently risky activity involving extending credit and undertaking liabilities  Therefore, banking can generate tremendous societal and economic benefits, but banking panics and failures can create devastating losses  Over time, a regulatory system designed to foster the benefits of banking while limiting risks has developed, and both banks and regulatio n have coevolved as market conditions have changed and different risks have emerged  For these reasons, Congress often considers policies related to the banking industry  The last decade has been a transformative period for banking  The 2007-2009 financial crisis threatened the total collapse of the financial system and the real economy  Many assert only huge and unprecedented government interventions staved off this collapse  Others argue that government interventions were unnecessary or potentially exacerbated the crisis  In addition, many argue the crisis revealed that the financial system was excessively risky and the regulatory regime governing the financial system had serious weaknesses  Policymakers responded to the perceived weaknesses in the pre-crisis financial regulatory regime by implementing numerous changes to financial regulation, including to bank regulation  Most notably, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P L  111-203 ) in 2010 with the intention of strengthening regulation and addressing risks  In addition, U S  bank regulators have implemented changes under their existing authorities, many of which generally adhere to the Basel III Accords—an international framework for bank regulation agreed to by U S  and international bank regulators—that called for making certain bank regulations more stringent  In the ensuing years, some observers raised concerns that the potential benefits of those regulatory changes (e g , better-managed risks, increased consumer protection, greater systemic stability, potentially higher economic growth over the long term) were outweighed by the potential costs (e g , compliance costs incurred by banks, reduced credit availability for consumers and businesses, potentially slower economic growth)  In response to these concerns, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act; P L  115-174 )  Among other things, the law modified certain (1) regulations facing small banks; (2) regulations facing banks large enough to be subjected to Dodd-Frank enhanced regulation but still below the size thresholds exceeded by the very largest banks; and (3) mortgage regulations facing lenders including banks  In addition, federal banking regulatory agencies—the Federal Reserve (the Fed), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—have proposed further changes in regulation  Implementing the regulatory changes prescribed in the aftermath of the crisis and made pursuant to the Dodd-Frank Act occurred over the course of years  In recent years—a period in which the leadership of the regulators has transferred from Obama Administration to Trump Administration appointees—the banking regulators have expressed the belief that, after having viewed the effects of the regulations, they now have the necessary information to determine which regulations may be ineffective or inefficient as currently implemented  Recently, these regulators have made of number of proposals with the aim of reducing regulatory burden  A key issue surrounding regulatory relief made pursuant to the EGRRCP Act and regulator-initiated changes is whether regulatory burden can be reduced without undermining the goals and effectiveness of the regulations  Meanwhile, market trends and economic conditions continue to affect the banking industry coincident with the implementation of new regulation  Some of the more notable conditions include the development of new technologies used in financial services (known as "fintech") and a rising interest rate environment following an extraordinarily long period of very low rates  This report provides a broad overview of selected banking-related issues, including issues related to "safety and soundness" regulation, consumer protection, community banks, large banks, what type of companies should be able to establish banks, and recent market and economic trends  This report is not an exhaustive look at all bank policy issues, nor is it a detailed examination of any one issue  Rather, it provides concise background and analyses of certain prominent issues that have been the subject of recent discussion and debate  In addition, this report provides a list of Congressional Research Service reports that examine specific issues  Banks face a number of regulations intended to increase the likelihood that banks are profitable without being excessively risky and prone to failures; decrease the likelihood that bank services are used to conceal the proceeds of criminal activities; and to protect banks and their customers' data from cyberattacks  This section provides background on these "safety and soundness" regulations and analyzes selected issues related to them, including prudential regulation related to capital requirements and the Volcker Rule (which restricts proprietary trading); requirements facing banks related to anti-money laundering laws, such as the Bank Secrecy Act (P L  91-508); and challenges related to cybersecurity  Bank failures can inflict large losses on stakeholders, including taxpayers via government "safety nets" such as deposit insurance and Federal Reserve lending facilities  Failures can cause systemic stress and sharp contraction in economic activity if they are large or widespread  To make such failures less likely—and to reduce losses when they do occur—regulators use prudential regulation designed to ensure banks are safely profitable and to reduce the likelihood of bank failure  In addition, banks are subject to regulations intended to reduce the prevalence of crime  Some of those are anti-money laundering measures aimed at stopping criminals from using the banking system to conduct or hide illegal operations  Others are cybersecurity regulations aimed at protecting banks and their customers from becoming victims of cybercrime, such as denial-of-service attacks or data theft  Banks profit in part because their assets are generally riskier, longer term, and more illiquid than their liabilities, which allows the banks to earn more interest on their assets than they pay on their liabilities  The practice is usually profitable, but does expose banks to risks that can potentially lead to failure  Failures can be reduced if (1) banks are better able to absorb losses or (2) they are less likely to experience unsustainably large losses  One tool regulators use to increase a bank's ability to absorb losses is to require banks to hold a minimum level of capital  Another tool regulators use to reduce the likelihood and size of potential losses is to prohibit banks from engaging in activities that could create excessive risks  For example, the Volcker Rule prohibits banks from engaging in proprietary trading —the buying and selling of securities that the bank itself owns with the aim of profiting from price changes  The EGRRCP Act mandated certain changes to these prudential regulations, and regulators have proposed changes under existing authorities  Regulators are to promulgate these changes through the rulemaking process in the coming months and years  In addition, whether policymakers have calibrated these regulations such that their benefits and costs are appropriately balanced is likely to be an area of ongoing debate  For these reasons, prudential regulation issues will likely continue to draw congressional attention  A bank's balance sheet is composed of assets, liabilities, and capital  Assets are largely the value of loans owed to the bank and securities owned by the bank  To make loans and buy securities, a bank secures funding by either issuing liabilities or raising capital  A bank's liabilities are largely the value of deposits and borrowings the bank owes savers and creditors  Capital is raised through various methods, including issuing equity to shareholders or special types of bonds that can be converted into equity  Banking is an inherently risky activity, because banks may suffer losses on assets but face rigid obligations on the liabilities owed to depositors and creditors  In contrast to liabilities, capital generally does not obligate the bank to repay or distribute a specified amount of money at a specified time  This characteristic means that, in the event a bank suffers losses, capital gives the bank the ability to absorb some amount of losses while meeting its obligations  Thus, banks can avoid failures if they hold sufficient capital  Banks are required to satisfy several requirements to ensure they hold enough capital  In the United States, these requirements are generally aligned with the Basel III standards developed as part of a nonbinding agreement between international bank regulators  In general, these are expressed as minimum ratios between certain balance sheet items that banks must maintain  A detailed examination of how these ratios are calculated and what levels must be met is beyond the scope of this report  This examination of policy issues only requires noting that capital ratios fall into one of two main types—a leverage ratio or a risk-weighted ratio  A leverage ratio treats all assets the same, requiring banks to hold the same amount of capital against assets regardless of how risky each asset is  A risk-weighted ratio assigns a risk weight—a percentage based on the riskiness of the asset that the asset value is multiplied by—to account for the fact that some assets are more likely to lose value than others  Riskier assets receive a higher risk weight, which requires banks to hold more capital to meet the ratio requirement  Whether the benefits of capital requirements (e g , increased bank and financial system stability) are generally outweighed by the potential costs (e g , reduced credit availability) is an issue subject to debate  Capital is typically a more expensive source of funding for banks than liabilities  Thus, requiring banks to hold higher levels of capital may make funding more expensive, and so banks may choose to reduce the amount of credit available  Some studies indicate this could slow economic growth  However, no economic consensus exists on this issue, because a more stable banking system with fewer crises and failures may lead to higher long-run economic growth  In addition, estimating the value of regulatory costs and benefits is subject to considerable uncertainty, due to difficulties and assumptions involved in complex economic modeling and estimation  Lack of consensus also surrounds questions over whether or under what circumstances risk-weighted ratios are necessary, effective, and efficient  Proponents of risk-based measures assert that it is important to use both risk-weighted and leverage ratios because each addresses weaknesses of the other  For example, riskier assets generally offer a greater rate of return to compensate the investor for bearing more risk  Without risk weighting, banks would have an incentive to hold riskier assets because the same amount of capital must be held against risky and safe assets  However, the use of risk-weighted ratios could be problematic for a number of reasons  Risk weights assigned to particular classes of assets could potentially be an inaccurate estimation of some assets' true risk, which could incent banks to misallocate available resources across asset classes  For example, banks held a high level of seemingly low-risk, mortgage-backed securities (MBSs) before the crisis, in part because those assets offered a higher rate of return than other assets with the same risk weight  MBSs then suffered unexpectedly large losses during the crisis  Another criticism is that the risk-weighted requirements involve "needless complexity" and their use is an example of regulatory micromanagement  The complexity could benefit the largest banks that have the resources to absorb the added regulatory cost compared with small banks that could find compliance costs more burdensome  (Small or "community" bank compliance issues will be covered in more detail in the " Regulatory Burden on Community Banks " section later in the report ) Section 201 of the EGRRCP Act is aimed at addressing concerns over the complexity of risk-weighted ratios and the costs they impose on community banks  This provision created an option for banks with less than $10 billion in assets to meet a higher leverage ratio—the Community Bank Leverage Ratio (CBLR)—in order to be exempt from having to meet the risk-based ratios described above  Bank regulators have issued a proposal to implement this provision wherein banks (1) below the threshold that (2) meet at least a 9% leverage ratio measure of equity and certain retained earnings to assets and (3) had limited off-balance sheet exposures and limited securities trading activity (among other requirements) would qualify for the exemption  The FDIC estimates that more than 80% of community banks will be eligible for the CBLR  However, this new optional exemption does not entirely settle the issue  One bank industry group has argued that 9% is set higher than is necessary, excluding deserving banks from the exemption  In addition, bills in the 115 th Congress, notably H R  10 , proposed a high-leverage-ratio option be available to banks regardless of size that would exempt qualifying banks from a wider range of prudential regulations  There are also specific policy issues relating to capital requirements for large banks, which are discussed in the " Regulator Proposals Related to Large Bank Capital Requirements " section below  Section 619 of Dodd-Frank—often referred to as the Volcker Rule—generally prohibits depository banks from engaging in proprietary trading or sponsoring a hedge fund or private equity fund  Proprietary trading refers to owning and trading securities for a bank's own portfolio with the aim of profiting from price changes  Put simply, if a bank is engaged in proprietary trading, it is itself an investor in stocks, bonds, and derivatives, which is commonly characterized as "playing the market" or "speculating " The rule includes exceptions for when bank trading is deemed appropriate—such as (1) when a bank is hedging against risks the bank has assumed as a part of its traditional business and (2) market-making (i e , buying available securities with the intention of quickly selling them to meet market demand)  Proprietary trading is an inherently risky activity, and banks have faced varying degrees of restrictions over engaging in this activity for a number of decades  Sections 16, 20, 21, and 32 of the Banking Act of 1933 (P L  73-66)—commonly referred to as the Glass-Steagall Act—generally prohibited certain deposit-taking banks from engaging in certain securities markets activities  Over time, regulator interpretation of Glass-Steagall and legislative changes expanded permissible activities for certain banks, allowing them to make certain securities investments and authorizing bank-holding companies to own depositories and securities firms within the same organization  The financial crisis increased debate over whether banks were engaging in unnecessarily risky activities  Ultimately, certain provisions in Dodd-Frank placed restrictions on permissible activities to reduce banks' riskiness, and the Volcker Rule was designed to prohibit proprietary trading by depository banking organizations  One of the Volcker Rule's proponents' main rationales for the separation of deposit-taking and certain securities investments is that when banks analyze and assume risks, they may be subject to moral hazard —the willingness to take on excessive risk due to some outside protection from losses  Deposits are an important source of bank funding and insured (up to a limit on each account) by the government  This arguably reduces depositors' incentive to monitor their banks' riskiness  Thus, a bank could potentially take on excessive risk without concern about losing this funding because, in the event of large losses that lead to failure, at least part of the losses will be borne by the FDIC's Deposit Insurance Fund (which is backed by the full faith and credit of the U S  government and so ultimately the taxpayer)  Thus, supporters of the Volcker Rule have characterized it as preventing banks from "gambling" in securities markets with taxpayer-backed deposits  However, critics of the Volcker Rule doubt its necessity and efficiency  In regard to necessity, they assert that proprietary trading at commercial banks did not play a substantive role in the financial crisis  They note the rule would not have prevented a number of the major events that played a direct role in the crisis—including failures or bailouts of large investment banks and insurers and losses on loans held by commercial banks  On this point, they also argue that proprietary trading risks are no greater than those posed by "traditional" banking activities, such as mortgage lending, and allowing banks to take on risks in different markets might diversify their risk profiles, making them less likely to fail  Debates relating to the efficiency of the Volcker Rule involve its complexity, compliance burden, and potential to lead banks to reduce their engagement in beneficial market activities  Recall that the Volcker Rule is not a ban on all trading, as banks are still allowed to trade to hedge risks or make markets  This poses practical supervisory problems  For example, how can regulators determine whether a broker-dealer is holding a security for market-making, as a hedge against another risk, or as a speculative investment? Differentiating among these motives creates the aforementioned complexity and compliance costs that could affect banks' trading behavior, and so could reduce financial market efficiency  Another criticism of the Volcker Rule in its original form was that it unnecessarily subjected all banks to the rule and their associated compliance costs  Critics of this aspect asserted that the vast majority of community banks are not involved in complex trading activity, but nevertheless must incur costs in evaluating the rule to ensure they are in compliance  Both Congress and regulators have recently taken actions in response to concerns over the complexity of the Volcker Rule and its compliance burden for small banks  Section 203 of the EGRRCP Act exempted banks with less than $10 billion in assets that fell below certain trading activity limits from the rule  Independent of that mandate, the agencies that implemented and enforced the Volcker Rule released and called for public comment on a proposal to simplify the rule in May 2018  Under the proposal, the agencies would clarify certain of the rule's definitions and criteria in an effort to reduce or eliminate uncertainties related to how certain trading activity can qualify for exemption  The proposal would also further tailor the compliance requirements facing banks based on the size of an institution's trading activity  Proponents of the Volcker Rule are generally wary of size-based exemptions  They contend that community banks typically do not face compliance obligations under the rule and do not face an excessive burden by being subject to it  They argue that community banks that are subject to compliance requirements can comply by having clear policies and procedures in place for review during the normal examination process  In addition, Volcker Rule supporters are generally critical of the regulators' proposal, asserting that the changes would undermine "the effective supervision and enforcement" of the rule  Anti-money laundering (AML) regulation refers to efforts to prevent criminal exploitation of financial systems to conceal the location, ownership, source, nature, or control of illicit proceeds  The U S  Department of the Treasury estimates domestic financial crime, excluding tax evasion, generates $300 billion in illicit proceeds that might involve money laundering  Despite robust AML efforts in the United States, the ability to counter money laundering effectively remains challenged by factors including (1) the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system; (2) the introduction of new and emerging threats such as cyber-related financial crimes; (3) gaps in legal, regulatory, and enforcement regimes; and (4) the costs associated with financial institution compliance with global AML guidance and national laws  In the United States, the statutory foundation for domestic AML originated in 1970 with the Bank Secrecy Act (BSA; P L  91-508) and its major component, the Currency and Foreign Transaction Reporting Act  Amendments to the BSA and related provisions in the 1980s and 1990s expanded AML policy tools available to combat crime, particularly drug trafficking, and prevent criminals from laundering their illicitly derived profits  Key elements to the BSA/AML legal framework include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering abuses  In general, banking regulators examine institutions for compliance with BSA/AML  When a regulator finds BSA violations or deficiencies in AML compliance programs, it may take informal or formal enforcement action, including possible civil fines  The BSA/AML policy framework is premised on banks and other covered financial entities filing a range of reports with the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), when their clients either engage in suspicious financial transactions, large cash transactions, or certain other transactions  For example, a bank generally must file a Suspicious Activity Report (SAR) if, among other reasons, it conducts a transaction of $5,000 or more that the bank suspects involves money laundering or other criminal activity  A bank must file a Currency Transaction Report (CTR) if it conducts a currency (i e , cash) transaction of $10,000 or more as to which it has the same suspicions  The accurate, timely, and complete reporting of such activity to FinCEN flags situations that may warrant further investigation for law enforcement  Whether this regulatory framework adequately hinders criminals from using the banking system to launder their criminal proceeds and whether it does so efficiently without unduly burdening banks are debated issues  One aspect of this debate is whether current reporting requirements are inefficient and overly costly to the banking industry  Some industry observers—including officials from the OCC—have indicated that they believe certain areas of the current framework could be reformed in a way that reduces compliance costs without unduly weakening the ability to prevent money laundering  In contrast, officials from other agencies involved in AML and law enforcement—including FinCEN and the FBI—have stressed the importance of the information gathered under the current reporting requirements in combating money laundering  Another area of concern involves beneficial owners —that is, the natural person(s) who own or control a legal entity, such as a corporation or limited liability company  When such entities are set up without physical operations or assets, they are often referred to as shell companies   Shell companies can be used to conceal beneficial ownership and facilitate anonymous financial transactions  In recent years, policymakers have become increasingly concerned regarding potential risks posed by shell companies whose beneficial ownership is not transparent  This is due in part to a series of leaks to the media regarding the use of shell companies to facilitate criminal activity (such as "the Panama Papers") and sustained multilateral criticism of current U S  practices by the Financial Action Task Force, an international standard-setting body  In May 2018, a new FinCEN regulation came into effect that increased the requirements for banks to conduct customer due diligence (CDD) and ascertain the identity of beneficial owners in certain cases  Central to the CDD rule is a requirement for financial institutions to establish and maintain procedures to identify and verify beneficial owners of a legal entity opening a new account  If Congress decides that reporting requirements facing banks are not appropriately calibrated, it could pass legislation amending those requirements  For example, Congress could change the CTR or SAR reporting threshold or index the threshold levels to inflation  Certain bills introduced in the 115 th Congress would have increased financial transparency and reporting requirements for beneficial owners in other nonbank fields, such as real estate, but could potentially indirectly impact the banking industry as well  Cybersecurity is a major concern of banks, other financial services providers, and federal regulators  In many ways, it is an important extension of physical security  For example, banks are concerned about both physical and electronic theft of money and other assets, and they do not want their businesses shut down by weather events or electronic denial-of-service attacks  Maintaining the confidentiality, security, and integrity of physical records and electronic data held by banks is critical to sustaining the level of trust that allows businesses and consumers to rely on the banking industry to supply services on which they depend  The federal government has increasingly recognized the importance of cybersecurity in the financial services industry, as evidenced by the inclusion of financial services in the government's list of critical infrastructure sectors  The basic authority that federal regulators use to establish cybersecurity standards emanates from the organic legislation that established the agencies and delineated the scope of their authority and functions  As previously discussed, federal banking regulators are required to promulgate safety and soundness standards for all federally insured depository institutions to protect the stability of the nation's banking system  Some of these standards pertain to cybersecurity issues, including information security, data breaches, and destruction or theft of business records  In addition, certain laws (at both the state and federal levels) have provisions related to cybersecurity of financial services that are often performed by banks, including the Dodd-Frank Act, the Gramm-Leach-Bliley Act of 1999 (GLBA; P L  106-102 ), and the Sarbanes-Oxley Act of 2002 ( P L  107-204 )  For example, Section 501 of GLBA imposes obligations on financial institutions to "respect the privacy of     [their] customers and to protect the security and confidentiality of those customers' nonpublic personal information " Federal banking regulators require the entities that they regulate to protect customer privacy of physical and electronic records as mandated by the privacy title of GLBA  Federal bank regulators also issue guidance in a variety of forms designed to help banks evaluate their risks and comply with cybersecurity regulations  Regulators bring adjudicatory enforcement actions on a case-by-case basis related to banks' violations of cybersecurity protocols  Banks often view these actions as signaling how an agency interprets aspects of its regulatory authority  For example, a number of recent consent orders issued by the FDIC have directed banks to perform assessments or audits of information technology programs and management to identify risks and ensure compliance with cybersecurity requirements  Thus, oversight of financial services and bank cybersecurity reflects a complex and sometimes overlapping array of state and federal laws, regulators, regulations, and guidance  However, whether this framework is effective and efficient, resulting in adequate protection against cyberattacks without imposing undue cost burdens on banks, is an open question  The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, highlights the importance of ensuring bank cybersecurity  For example, in 2014, JPMorgan Chase, the largest U S  bank, experienced a data breach that exposed financial records of 76 million households  However, no consensus exists on how best to reduce the occurrence of such incidents  Financial products can be complex and potentially difficult for consumers to fully understand  Consumers seeking loans or financial services could be vulnerable to deceptive or unfair practices  To reduce the occurrence of bad outcomes, laws and regulations have been put in place to protect consumers  This section provides background on consumer financial protection and the Bureau of Consumer Financial Protection's (CFPB) authority  The section also analyzes related issues, including whether the CFPB has used its authorities and regulations of banking institutions appropriately; concerns relating to the lack of consumer access to banking services; and whether the Community Reinvestment Act as currently implemented is effectively and efficiently meeting its goal of ensuring banks provide credit to the areas in which they operate  Banks are subject to consumer compliance regulation, intended to ensure that banks are in compliance with relevant consumer-protection and fair-lending laws  Federal laws and regulations in this area take a variety of approaches and address different areas of concern  Certain laws provide disclosure requirements intended to ensure consumers adequately understand the costs and other features and terms of financial products  Other laws prohibit unfair, deceptive, or abusive acts and practices  Fair lending laws prohibit discrimination in credit transactions based upon certain borrower characteristics, including sex, race, religion, or age, among others  The financial crisis raised concerns among policymakers that regulators' mandates lacked sufficient focus on consumer protection  In response, the Dodd-Frank Act established the CFPB with the single mandate to implement and enforce federal consumer financial law, while ensuring consumers can access financial products and services  The CFPB also seeks to ensure the markets for consumer financial services and products are fair, transparent, and competitive  For banks with more than $10 billion in assets, the CFPB is the primary regulator for consumer compliance, whereas safety and soundness regulation continues to be performed by the prudential regulator  As a regulator of larger banks, the CFPB has rulemaking, supervisory, and enforcement authorities  A large bank, therefore, has different regulators for consumer protection and safety and soundness  For banks with $10 billion or less in assets, the rulemaking, supervisory, and enforcement authorities for consumer protection are divided between the CFPB and a prudential regulator  The CFPB may issue rules that apply to smaller banks, but the prudential regulators maintain primary supervisory and enforcement authority for consumer protection  The CFPB has limited supervisory and enforcement powers over small banks  Consumer protection and fair lending compliance continue to be important issues for banks for numerous reasons  Noncompliance can result in regulators taking enforcement actions that may involve substantial penalties  In addition, even in the absence of enforcement actions, an institution faces reputational risks if it comes to be perceived as dealing badly with customers  For example, the CFPB maintains a consumer complaints database that makes public consumer complaints against individual companies readily available, potentially affecting prospective customers' decisions on which companies to use for financial services  The recent public reaction to and enforcement actions pertaining to Wells Fargo's unauthorized opening of customer accounts show the importance of strong consumer protection compliance  Recently, banks and other nonbank financial institutions that provide financial products to consumers (e g , mortgages, credit cards, and deposit accounts) have been affected by the implementation of new CFPB regulations  For example, banks and other lenders have begun to comply with major new mortgage rules such as the Ability-to-Repay and Qualified Mortgage Standards Rule (ATR/QM) and Truth in Lending Act/Real Estate Settlement Act Integrated Disclosure Rule (TRID)  The ATR/QM encourages lenders to gather more information on prospective borrowers than they otherwise might have in order to reduce the likelihood that a borrower would receive an inappropriate loan  TRID requires lenders to provide borrowers with certain information about the mortgages for which they are applying  In addition to these and other new regulations, the CFPB also provides information on its supervisory activities related to banks, such as instances where its examiners found that certain financial institutions misrepresented service fees associated with deposit and checking accounts  Compliance with these new rules has increased banks' operational costs, which some argue potentially leads to higher costs for consumers in certain markets or a reduction in the availability of credit  Others stress that CFPB's regulatory, supervisory, and enforcement efforts reduce the likelihood of consumer harm in financial markets  Debates about how best to achieve the appropriate balance between consumer protection, credit access, and industry costs are unlikely to be resolved easily, and thus may continue to be an area of congressional interest  The banking sector provides valuable financial services for households that allow them to save, make payments, and access credit  Safe and affordable financial services allow households to avoid financial hardship, build assets, and achieve financial security  However, many U S  households (often those with low incomes, lack of credit histories, or credit histories marked with missed debt payments) do not use banking services  According to the FDIC's National Survey of Unbanked and Underbanked Households, in 2017, 6 5% of households in the United States were unbanked (i e , did not have an account at an insured institution) and 18 7% of households were underbanked (i e , obtained financial products and services outside of the banking system in the past year)  Lack of bank access leads some households to rely on alternative financial service providers and consumer credit products outside of the formal banking sector, such as payday or auto title loans  According to an FDIC estimate, 12 9% of households had unmet demand for mainstream small-dollar credit  Certain observers believe that financial outcomes for the unbanked and underbanked would be improved if banks—which may be more likely to be a stable source of relatively inexpensive financial services relative to certain alternatives—were more active in meeting this demand  For this reason, prudential regulators, like the OCC and the FDIC, are currently exploring ways to encourage banks to offer small-dollar credit products to consumers, and other policymakers and observers will likely continue to explore ways to make banking more accessible to a greater portion of the population  The Community Reinvestment Act of 1977 (CRA; P L  95-128 ) addresses how banking institutions meet the credit needs of the areas they serve, notably in low- and moderate-income (LMI) neighborhoods  The federal prudential banking regulators (the Fed, the OCC, and the FDIC) conduct examinations to evaluate how banks are fulfilling the objectives of the CRA  The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within an assigned assessment area   These credits are then used to issue each bank a performance rating, from Outstanding to Substantial Noncompliance  The CRA requires regulators to take these ratings into account when banks request to merge with other banking institutions or otherwise expand their operations into new areas  Whether regulations as currently implemented are effectively and efficiently meeting the CRA's goals has been the subject of debate  The banking industry and other observers assert that CRA regulations can be altered in a way that would reduce regulatory burden while still meeting the law's goals  Recently, the OCC and Treasury have made proposals to address those concerns  However, consumer and community advocates argue that efforts to provide relief to banks may potentially be at the expense of communities that the CRA is intended to help  Treasury made a number of recommendations to the bank regulators for changes to CRA regulations in a memorandum it sent to those agencies in April 2018  Regarding the need for modernization, the memorandum recommends revisiting the approach for determining banks' assessment areas, given that geographically defined areas arguably may not fully reflect the community served by a bank because of technology developments  Treasury also recommends establishing clearer standards for CRA-eligible activities that provide flexibility and expand the types of loans, investments, and services that are eligible for CRA credit  Regarding aspects of CRA compliance that may be unnecessarily burdensome, Treasury recommends increasing the timeliness of the CRA performance examination process  Regarding improving the outcomes that the CRA was intended to encourage, such as increasing the availability of credit to LMI neighborhoods, Treasury recommendations include incorporating performance incentives that might result in more efficient lending activities  In September 2018, the OCC published an advance notice of proposed rulemaking (ANPR) seeking public comment on 31 questions pertaining to issues to consider and possible changes to CRA regulation  The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry  The OCC received more than 1,300 comment letters in response to the ANPR that were alternatively supportive or critical of the various possible alterations to CRA regulation  Although some banks hold a very large amount of assets, are complex, and operate on a national or international scale, the vast majority of U S  banks are relatively small, have simple business models, and operate within a local area  This section provides background on these simpler banks—often called community bank s —and analyzes issues related to them, including regulatory relief for community banks and the long-term decline in the number of community banks  Although there is no official definition of a community bank, policymakers and the public generally recognize that the vast majority of U S


Report 2:  banks differ substantially from a relatively small number of very large and complex banking organizations in a number of ways  Community banks tend to hold a relatively small amount of assets (although asset size alone need not be a determining factor); be more concentrated in core bank businesses of making loans and taking deposits and less involved in other, more complex activities; and operate within a smaller geographic area, making them generally more likely to practice relationship lending wherein loan officers and other bank employees have a longer standing and perhaps more personal relationship with borrowers  Therefore, community banks may serve as particularly important credit sources for local communities and underserved groups of which large banks may have little familiarity  In addition, relative to large banks, community banks generally have fewer employees, less resources to dedicate to regulatory compliance, and individually pose less of a systemic risk to the broader financial system  Congress often faces policy issue questions related to community banks  Community bank advocates often assert the tailoring of regulations currently in place does not adequately balance the benefits and costs of the regulations when applied to community banks  Concerns have also been raised about the three-decade decline in the number and market presence of these institutions, and the predominant cause of that decline is a matter of debate  In recent decades, community banks, under almost any common definition, have seen their numbers decline and their collective share of banking industry assets fall in the United States  Overall, the number of FDIC-insured institutions fell from a peak of 18,083 in 1986 to 5,477 in 2018  The number of institutions with less than $1 billion in assets fell from 17,514 to 4,704 during that time period, and the share of industry assets held by those banks fell from 37% to 7%  Meanwhile, the number of banks with more than $10 billion in assets rose from 38 to 138, and the share of total banking industry assets held by those banks increased from 28% to 84%  The decrease in the number of community banks occurred mainly through three methods: mergers, failures, and lack of new banks  Most of the decline in the number of institutions in the past 30 years was due to mergers, which averaged more than 400 a year from 1990 to 2016  Failures were minimal from 1999 to 2007, but played a larger role in the decline during the late 1980s and following the 2007-2009 financial crisis and subsequent recession  As economic conditions have improved, failures have declined, but the number of n ew r eporters —new chartered institutions providing information to the FDIC for the first time—has been extraordinarily small in recent years  For example, in the 1990s, an average of 130 new banks reported data to the FDIC per year  Through September 30, five new banks reported data to the FDIC in 2018  Observers have cited several possible causes for this industry consolidation  Some observers argue the decline indicates that the regulatory burden on community banks is too onerous, driving smaller banks to merge to create or join larger institutions, an argument covered in more detail in the following section, " Regulatory Burden on Community Banks  " However, mergers—the largest factor in consolidation—could occur for a variety of reasons  For example, a bank that is struggling financially may look to merge with a stronger bank to stay in business  Alternatively, a community bank that has been outperforming its peers may be bought by a larger bank that wants to benefit from its success  In addition, other fundamental changes besides regulatory burden in the banking system could be driving consolidation, making it difficult to isolate the effects of regulation  Through much of the 20 th century, federal and state laws restricted banks' ability to open new branches and banking across state lines was restricted  Thus, many more banks were needed to serve every community  Branching and banking across state lines was not substantially deregulated at the federal level until 1997 through the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ( P L  103-328 )  When these restrictions were relaxed, it became easier for community banks to consolidate or for mid-size and large banks to spread operations to other markets  In addition, there may be economies of scale, not only in compliance, but in the business of banking in general  Furthermore, the economies of scale may be growing over time, which would also drive industry consolidation  For example, information technology has become more important in banking (e g , cybersecurity and mobile banking), and certain information technology systems may be subject to economies of scale  Finally, the slow growth coming out of the most recent recession, and macroeconomic conditions more generally (such as low interest rates), may make it less appealing for new firms to enter the banking market  Community banks receive special regulatory consideration to minimize their regulatory burden  For example, many regulations—including a number of regulations implemented pursuant to the Dodd-Frank Act—include exemptions for community banks or are otherwise tailored to reduce compliance costs for community banks  Title I and Title II of the EGRRCP Act contained numerous provisions that provided new exemptions to community banks or raised the thresholds for existing exemptions, such as the Community Bank Leverage Ratio and Volcker Rule exemptions discussed above in the " Prudential Regulation " section  In addition, bank regulators are required to consider the effect of rules on community banks during the rulemaking process pursuant to provisions in the Regulatory Flexibility Act ( P L  96-354 ) and the Riegle Community Development and Regulatory Improvement Act ( P L  103-325 )  Supervision is also structured to pose less of a burden on small banks than larger banks, such as by requiring less-frequent bank examinations for certain small banks and less intensive reporting requirements  However, Congress often faces questions related to whether tailoring in general or tailoring provided in specific regulations is sufficient to ensure that an appropriate trade-off has been struck between the benefits and costs of regulations facing community banks  Advocates for further regulatory relief argue that certain realized benefits are likely to be relatively small, whereas certain realized costs are likely to be relatively large  One area where the benefits of regulation may be relatively small for community banks relative to large banks is regulations aimed at improving systemic stability, because community banks individually pose less of a risk to the financial system as a whole than a large, complex, interconnected bank  Many recent banking regulations were implemented at least in part in response to the systemic nature of the 2007-2009 crisis  Some community bank proponents argue that because small banks did not cause the crisis and pose less systemic risk, they need not be subject to new regulations made in response to the crisis  Opponents of these arguments note that systemic risk is only one of the goals of regulation, along with prudential regulation and consumer protection, and that community banks are exempted from many of the regulations aimed at systemic risk  They note that hundreds of small banks failed during and after the crisis, suggesting the prudential regulation in place prior to the crisis was not stringent enough  Another potential rationale for easing regulations on community banks would be if there are economies of scale to regulatory compliance costs, meaning that regulatory compliance costs may increase as bank size does but decrease as a percentage of overall costs or revenues  Put another way, as regulatory complexity increases, compliance may become relatively more costly for small institutions  Empirical evidence on whether compliance costs are subject to economies of scale is mixed, thus consider this illustrative example to show the logic behind the argument  Imagine a bank with $100 million in assets and 25 employees and a bank with $10 billion in assets and 1,250 employees each determine they must hire an extra employee to ensure compliance with new regulations  The relative burden is larger on the small institution that expands its workforce by 4% than on the large bank that expands by less than 0 1%  From a cost-benefit perspective, if regulatory compliance costs are subject to economies of scale, then the balance of costs and benefits of a particular regulation will differ depending on the size of the bank  For the same regulatory proposal, economies of scale could potentially result in costs outweighing benefits for smaller banks  Due to a lack of empirical evidence of the exact benefits and costs of each individual regulation at each individual bank (and even lack of consensus over which banks should qualify as community banks), debates over the appropriate level of tailoring of regulations is a debate over calibration involving qualitative assessments  Where should the lines be drawn? Should exemption thresholds be set high so that regulations apply only to the very largest, most complex banks? Should thresholds be set relatively low, so that only very small banks are exempt? At what point does a bank cease to have the characteristics associated with community banks? Often at issue in this debate are the so-called regional banks —banks that are larger and operate across a greater geographic market than the community banks but are also smaller and less complex than the largest, most complex organizations with hundreds of billions or trillions of dollars in assets  Should regulators provide regional banks the same exemptions as those provided to community banks? Policymakers, in the 116 th Congress, continue to face these and other questions concerning community banks  Along with the thousands of relatively small banks operating in the United States, there are a handful of banks with hundreds of billions of dollars of assets  The 2007-2009 financial crisis highlighted the problem of "too big to fail" (TBTF) financial institutions—the concept that the failure of a large financial firm could trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent the failure of certain of these institutions  In response to the crisis, policymakers took a number of steps through the Dodd-Frank Act and the Basel III Accords to eliminate the TBTF problem, including subjecting the largest banks to enhanced prudential regulations, a new resolution regime to unwind these banks in the event of failure, and higher capital requirements  This section provides background on these large banks and examines issues related to them, including reductions in the application of enhanced prudential regulations facing certain large banks made pursuant to P L  115-174 and changes to capital requirements proposed by regulators that would reduce the amount of capital certain large banks would have to hold  As regulators implement these statutory changes and their proposed rules move forward, Congress faces questions about whether relaxing these regulations appropriately eases overly stringent requirements or unnecessarily increases the likelihood that large banks take on excessive risks  Some bank holding companies (BHCs) have hundreds of billions or trillions of dollars in assets and are deeply interconnected with other financial institutions  A bank may be so large that its leadership and market participants may believe that the government would save it if it became distressed  This belief could arise from the determination that the institution is so important to the country's financial system—and that its failure would be so costly to the economy and society—that the government would feel compelled to avoid that outcome  An institution of this size and complexity is said to be TBTF  In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail creates moral hazard —if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks  As a result, TBTF institutions may have incentives to be excessively risky, gain unfair advantages in the market for funding, and expose taxpayers to losses  Several market forces likely drive banks and other financial institutions to grow in size and complexity, thereby potentially increasing efficiency and improving financial and economic outcomes  For example, marginal costs can be reduced through economies of scale; risk can be diversified by spreading exposures over multiple business lines and geographic markets; and a greater array of financial products could be offered to customers allowing a bank to potentially attract new customers or strengthen relationships with existing ones  These market forces and the relaxation of certain interstate banking and branching regulations described in the " Reduction in Community Banks " section may have driven some banks to become very large and complex in the years preceding the crisis  At the end of 1997, two insured depository institutions held more than $250 billion in assets, and together accounted for about 9 3% of total industry assets  By the end of 2007, six banks held more than $250 billion in assets, accounting for 40 9% of industry assets  The trend has generally continued, and as of the third quarter of 2018, nine banks held more than $250 billion in assets, accounting for 49 5% of industry assets  Many assert that the worsening of the financial crisis in fall 2008 was a demonstration of TBTF-related problems  Large institutions had taken on risks that resulted in large losses, causing the institutions to come under threat of failure  In some cases, the U S  government took actions to stabilize the financial system and individual institutions  Wachovia and Washington Mutual were large institutions that were acquired by other institutions to avoid their failure during the crisis  Bank of America and Citigroup received extraordinary assistance through the Troubled Asset Relief Program (TARP) to address financial difficulties  Other large (and small) banks participated in emergency government programs offered by the Treasury (TARP), the Federal Reserve, and the FDIC  In response, the Dodd-Frank Act attempted to end TBTF through (1) a new regulatory regime to reduce the likelihood that large banks would fail; (2) a new resolution regime to make it easier to safely wind down large bank holding companies that are at risk of failing; and (3) new restrictions on regulators' use of emergency authority to prevent "bail outs" of failing large banks  In addition, the Federal Reserve imposed additional capital requirements on the largest banks that largely aligned with proposed standards set out by the Basel III Accords, with some exceptions  To make it less likely that large banks would fail, certain large banks are now subject to an enhanced prudential regulatory regime administered by the Federal Reserve  Under this regime, large banks are subject to more stringent safety and soundness standards than other banks  They must comply with higher capital and liquidity requirements, undergo stress tests, produce living wills and capital plans, and comply with counterparty limits and risk management requirements  To make it easier to wind down complex BHCs with nonbank subsidiaries, the Dodd-Frank Act created the Orderly Liquidation Authority (OLA), a resolution regime administered by the FDIC that is similar to how the FDIC resolves bank subsidiaries  This replaced the bankruptcy process, focused on the rights of creditors, with an administrative process, focused on financial stability, for winding down such firms  To date, OLA has never been used  The Dodd-Frank Act initially applied enhanced prudential regulation requirements to all BHCs with more than $50 billion in assets, although more stringent standards were limited to banks with more than $250 billion in assets or $10 billion in foreign exposure, and the most stringent standards were limited to U S  globally systemically important banks (G-SIBs), the eight most complex U S  banks  Subsequent to the enactment of Dodd-Frank, critics of the $50 billion asset threshold argued that many banks above that size are not systemically important and that Congress should raise the threshold  In particular, critics distinguished between regional banks (which tend to be at the lower end of the asset range and, some claim, have a traditional banking business model comparable to community banks) and Wall Street banks ( a term applied to the largest, most complex organizations that tend to have significant nonbank financial activities)  Opponents of raising the threshold disputed this characterization, arguing that some regional banks are involved in sophisticated activities, such as being swap dealers, and have large off-balance-sheet exposures  In response to concerns that the enhanced prudential regulation threshold was set too low, P L  115-174 exempted banks with between $50 billion and $100 billion in assets from enhanced prudential regulation, leaving them to be regulated in general like any other bank  Under the proposed rule implementing the P L  115-174 changes, the Fed has increased the tiering of enhanced regulation for banks with more than $100 billion in assets  The proposed rule would create four categories of banks based on size and complexity, and impose increasingly stringent requirements on each category  From most to least stringent, Category I would currently include the eight G-SIBs, Category II would include one bank, Category III would include four banks, and Category IV would include 11 banks  Compared with current policy, banks in all categories would face reduced regulatory requirements under this rule, other proposed rules, and forthcoming rules required by Section 402 of P L  115-174 , if finalized  In addition, P L  115-174 created new size-based exemptions from various regulations, increasing the tendency to subject larger banks to more stringent requirements than smaller banks  These changes include exemptions from the Volcker Rule and risk-weighted capital requirements for banks with less than $10 billion in assets (meeting certain criteria)  Proponents of the changes assert they provide necessary and targeted regulatory relief  Opponents argue they needlessly pare back important Dodd-Frank protections to the benefit of large and profitable banks  As discussed in the " Capital Requirements " section, all banks must hold enough capital to meet certain capital ratio requirements  Broadly, those requirements take two forms—risk-weighted requirements and unweighted leverage requirements  In addition, a small subset of very large and very complex banks also face additional capital ratio requirements implemented by the U S  federal bank regulators  The Federal Reserve has made two proposals to simplify and relax certain aspects of these additional requirements, and these proposals are subject to debate  All banks must hold additional high-quality capital on top of the minimum required levels—called the capital conservation buffer (CCB)—to avoid limitations on their capital distributions, such as dividend payments  In addition, certain large banks are subject to the Federal Reserve's stress tests, the results of which can lead to restrictions on the bank's capital distributions  Stress tests are intended to ensure that banks hold enough capital to withstand a hypothetical market stress scenario, but arguably have the effect of acting as additional capital requirements with which banks must comply  Advanced approaches banks must maintain a fixed minimum supplementary leverage ratio (SLR), an unweighted capital requirement that is more stringent than the leverage ratio facing smaller banks because it incorporates off-balance sheet exposures  A Congressional Research Service (CRS) analysis of large holding companies' regulatory filings indicates that, currently, 19 large and complex U S  bank or thrift holding companies are classified as advanced approaches banks  G-SIBs must meet fixed enhanced SLR (eSLR) requirements, which sets the SLR higher for these banks  In addition, the G-SIBs are subject to an additional risk-weighted capital surcharge (on top of other risk-weighted capital requirements that all banks must meet) of between 1% and 4 5% based on the systemic importance of the institution  Whether these requirements are appropriately calibrated is a debated issue  Proponents of recalibrating some of these capital requirements argue that those requirements set at a fixed number—including the CCB and eSLR—are inefficient, because they do not reflect varying levels of risk posed by individual banks  Recalibration proponents also argue that compiling with these requirements in addition to stress test requirements is unnecessarily burdensome for banks  Opponents of proposals to relax current capital requirements facing large and profitable banks assert that doing so needlessly pares back important safeguards against bank failures and systemic instability  In response to concerns that fixed requirements do not adequately account for risk differences between institutions, the Fed has issued two proposals for public comment that would link individual large banks' requirements with other risk measures  One proposal would make bank CCB requirements a function of their stress tests results, and the other proposal would link large banks' eSLR requirements with individual G-SIB systemic importance scores  The Fed estimates that the new CCB requirement would generally reduce the amount of capital large banks would have to hold, but that some G-SIBs would see their required capital levels increase  The Fed estimates that the new eSLR requirement would generally reduce the amount of capital held by G-SIB parent companies by $400 million and the amount held by insured depository subsidiaries by $121 billion  To legally operate as a bank and perform the relevant activities, an institution generally must have a charter granted by either the OCC at the federal level or a state-level authority  In addition, to engage in certain activities, the institution must have federal deposit insurance granted by the FDIC  Currently, these requirements raise a number of policy questions, including whether companies established primarily as financial technology companies should be able to receive a national bank charter, as has been offered by the OCC; and whether the application process and determinations made by the FDIC as they relate to institutions seeking a specific type of state charter, called an industrial loan company (ILC) charter, is overly restrictive  An institution that makes loans and takes deposits—the core activities of traditional commercial banking—must have a government issued charter  Numerous types of charters exist, including national bank charters; state bank charters; federal savings association charters, and state savings association charters (saving associations are also referred to as thrifts )  Each charter type determines what activities are permissible for the institution, what activities are restricted, and which agency will be the institution's primary federal regulator (see Table 1 )  One of the main rationales for this system is that it gives institutions with different business models and ownership arrangements the ability to choose a regulatory regime appropriately suited to the institution's business needs and risks  The differences between institution business models and the attendant regulations are numerous, varied, and beyond the scope of this report  The issues examined in this section arise from each charter's granting an institution the right to engage in certain banking related activities, and thus generating the potential benefits and risks of those activities  Broadly, these issues relate to questions over whether companies that differ from traditional banks should be allowed to engage in traditional banking activities given the types and magnitudes of benefits and risks the companies might present  Recent advances in technology, including the proliferation of available data and internet access, have altered the way financial activities are performed in many ways  These innovations in financial technology, or fintech, have created the opportunity for certain activities that have traditionally been the business of banks to instead be performed by technology-focused, nonbank companies  Lending and payment processing are prominent examples  This development has raised questions over how these fintech companies should be regulated, and the appropriate federal and state roles in that regulation  One possible, though contested, proposal for addressing a number of these questions would be to make an OCC national bank charter available to certain fintech companies  Many nonbank fintech companies performing bank-like activities are regulated largely at the state level  They may have to obtain lending licenses or register as money transmitters in every state they operate and may be subject to the consumer protection laws of that state, such as interest rate limits  Proponents of fintech companies argue that subjecting certain technology companies to 50 different state level regulatory regimes is unnecessarily burdensome and hinders companies that hope to achieve nationwide operations quickly using the internet  In addition, a degree of uncertainty surrounding the applicability of certain laws and regulations to certain fintech firms and activities has arisen  For example, whether federal preemption of state interest rate limits apply to loans made through a marketplace lender —that is, online-only lenders that exclusively use automated, algorithmic underwriting—but originated by a bank faces legal uncertainty due to certain court decisions, including Madden v Midlands   One possible avenue to ease the state-by-state regulatory burdens and resolve the uncertainties facing some fintech firms would be to allow those firms that perform bank-like activities to apply for and (provided they meet necessary requirements) to grant them national bank charters  First proposed in 2016 by then-Comptroller of the Currency Thomas Curry, and following subsequent examination of the issue and review of public comments, the OCC announced in July 2018 that it would consider "applications for special purpose bank charters from financial technology (fintech) companies that are engaged in the business of banking but do not take deposits " OCC argues that companies with such a charter would be explicitly subject to all laws and regulations (including those that preempt state law, a contentious issue addressed below) applicable to national banks  The OCC stated that fintech firms granted the charter "will be subject to the same high standards of safety and soundness and fairness that all federally chartered banks must meet," and also that the OCC "may need to account for differences in business models and activities, risks, and the inapplicability of certain laws resulting from the uninsured status of the bank " Thus, the argument goes, establishing a fintech charter would mean a new set of innovative companies would no longer face regulatory uncertainty and could safely and efficiently provide beneficial financial services, perhaps to populations and market-niches that banks with traditional cost structures do not find cost-effective to serve  Until the OCC actually grants such charters and fintech firms operate under the national bank regime for some amount of time, how well this policy fosters potential innovations and benefits while guarding against risks is the subject of debate  Proponents of the idea generally view the charter as a mechanism for freeing companies from what they assert is the unnecessarily onerous regulatory burden of being subject to numerous state regulatory regimes  They further argue that this would be achieved without overly relaxing regulations, as the companies would become subject to the OCC's national bank regulatory regime and its rulemaking, supervisory, and enforcement authorities  Opponents generally assert both that the OCC does not have the authority to charter these types of companies, as discussed below, and that doing so would inappropriately allow marketplace lenders to circumvent important state-level consumer protections  The OCC's assertion that it has the authority to grant such charters has been challenged  Shortly after the initial 2016 announcements that the OCC was examining the possibility of granting the charters, the Conference of State Bank Supervisors and the New York State Department of Financial Services sued the OCC to prevent it from issuing the charters on the grounds that it lacked the authority to do so  A federal district court dismissed the case after concluding that because the OCC had not yet issued charters to nonbanks, the plaintiffs (1) lacked standing to challenge the OCC's purported decision to move forward with chartering nonbanks, and (2) had alleged claims that were not ripe for adjudication  Subsequent to the OCC's July 2018 announcement, state regulators have again filed lawsuits  Industrial loan companies (ILCs) hold a particular type of charter offered by some states that generally allows ILCs to engage in certain banking activities  Depending on the state, those activities can include deposit-taking, but only if they are granted deposit insurance by the FDIC  Thus, ILCs that take deposits are state regulated with the FDIC acting as the primary federal regulator  Importantly, a parent company that owns an ILC that meets certain criteria is not necessarily considered a BHC for legal and regulatory purposes  This means ILC charters create an avenue for commercial firms (i e , companies not primarily focused on the financial industry, such as manufacturers, retailers, or possibly technology companies) to own a bank  Nonfinancial parent companies of ILCs generally are not subject to Fed supervision and other regulations pursuant to the Bank Holding Company Act of 1956 (P L  84-511)  A commercial firm may want to own a bank for a number of economic reasons  For example, an ILC can provide financing to the parent company's customers and clients and thus increase sales for the parent  In recent decades, household-name manufacturers have owned ILCs, including but not limited to General Motors, Toyota, Harley Davidson, and General Electric  However, while they can generate profits and potentially increase credit availability, ILCs pose a number of potential risks  The United States has historically adopted policies to generally separate commerce and banking, because allowing a single company to be involved in both activities could potentially result in a number of bad outcomes  A mixed organization's banking subsidiary could make decisions based on the interests of the larger organization, such as making overly risky loans to customers of a commerce subsidiary or providing funding to save a failing commerce subsidiary  Such conflicts of interest could threaten the safety and soundness of the bank  Relatedly, some have argued that having a federally insured bank within a commercial organization is an inappropriate expansion of federal banking safety nets (such as deposit insurance)  Certain observers, including community banks, have concerns over whether purely commercial or purely banking organizations would be able to compete with combined organizations that could potentially use economies of scale and funding advantages to exercise market power  These arguments played a prominent role in the public debate that was sparked when Walmart and Home Depot made unsuccessful efforts to secure an ILC charter between 2005 and 2008  Amid this debate, the FDIC imposed a moratorium in 2006 on the acceptance, approval, or denial of ILC applications for deposit insurance while the agency reexamined its policies related to these companies  That moratorium ended in January 2008  Subsequently, concerns over ILCs led Congress to mandate another moratorium (this one lasting three years, ending in July 2013) on granting new ILCs deposit insurance in the Dodd-Frank Act  No consensus has been reached on the magnitude of these risks and validity of the concerns surrounding deposit-taking ILCs  Recently, two financial technology companies, Square and SoFi, have applied for ILC charters and renewed debates over ILCs  Even though the moratoriums on granting ILCs deposit insurance have expired, the FDIC has not approved any new ILC applications since the 2013 expiration  However, since becoming FDIC chairman in June 2018, Jelena McWilliams has made statements indicating that under her leadership the FDIC will again consider ILC applications  Given the interest in and debate surrounding this charter type, policymakers will likely examine questions over the extent to which ILCs create innovative sources of credit and financial services subject to appropriate safeguards or inadvisably allow commercial organizations to act as banks with federal safety nets while exempting them from certain bank regulation and supervision  In addition to regulation issues, market and economic conditions and trends continually affect the banking industry  This section analyzes such trends that may affect banks, including migration of financial activity from banks into nonbanks or the "shadow banking" system; increasing capabilities and market presence of financial technology or fintech; and a higher interest rate environment following a long period of extraordinarily low rates  Credit intermediation is a core banking activity and involves transforming short-term, liquid, safe liabilities into relatively long-term, illiquid, higher-risk assets  In the context of traditional banking, credit intermediation is performed by taking deposits from savers and using them to fund loans to borrowers  Nonbank institutions can also perform similar credit intermediation to banks—sometimes called shadow banking —using certain instruments such as money market mutual funds, short-term debt instruments, and securitized pools of loans  When illiquid assets are funded by liquid liabilities, an otherwise-solvent bank or nonbank might experience difficulty meeting short-term obligations without having to sell assets, possibly at "fire sale" prices  If depositors or other funding providers feel their money is not safe with an institution, many of them may withdraw their funds at the same time  Such a "run" could cause an institution to fail  Long-established government programs mitigate liquidity- and run-risk in the banking industry  The Federal Reserve is authorized to act as a "lender of last resort" for a bank experiencing liquidity problems, and the FDIC insures depositors against losses  Banks are also subject to prudential regulation—as discussed in the " Prudential Regulation " section  However, nonbank intermediation is performed without the government safety nets available to banks or the prudential regulation required of them  The lack of an explicit government safety net in shadow banking means that taxpayers are less explicitly or directly exposed to risk, but it also means that shadow banking may be more vulnerable to a panic that could trigger a financial crisis  Some argue that the increased regulatory burden placed on banks in response to the financial crisis—such as the changes in bank regulation mandated by Dodd-Frank or agreed to in Basel III—could result in a decreased role for banks in credit intermediation and an increased role for relatively lightly regulated nonbanks  Many contend the financial crisis demonstrated how risks to deposit-like financial instruments in the shadow banking sector—such as money market mutual funds and repurchase agreements—can create or exacerbate systemic distress  Money market mutual funds are deposit-like instruments that are managed with the goal of never losing principal and that investors can convert to cash on demand  Institutions can also access deposit-like funding by borrowing through short-term funding markets—such as by issuing commercial paper and entering repurchase agreements  These instruments can be continually rolled over as long as funding providers have confidence in the borrowers' solvency  During the crisis, all these instruments—which investors had previously viewed as safe and unlikely to suffer losses—experienced run-like events as funding providers withdrew from markets  Moreover, nonbanks can take on exposure to long-term loans through investing in mortgage-backed securities (MBS) or other asset-backed securities (ABS)  During the crisis, as firms faced liquidity problems, the value of these assets decreased quickly, possibly in part as a result of fire sales  Since the crisis, many regulatory changes have been made related to certain money market, commercial paper, and repurchase agreement markets and practices  For example, in the United States, certain money market mutual funds now must have a floating net asset value   Among other benefits, this may signal to fund investors that a loss of principal is possible and thus reduce the likelihood that investors would "run" at the first sign of possible small losses  However, some observers are still concerned that shadow banking poses risks, because the funding of relatively long-term assets with relatively short-term liabilities will inherently introduce run-risk absent certain safeguards  As discussed above, f intech usually refers to technologies with the potential to alter the way certain financial services are performed  Banks are affected by technological developments in two ways: (1) they face choices over how much to invest in emerging technologies and to what extent they want to alter their business models in adopting technologies, and (2) they potentially face new competition from new technology-focused companies  Such technologies include online marketplace lending, crowdfunding, blockchain and distributed ledgers, and robo-advising, among many others  Certain financial innovations may create opportunities to improve social and economic outcomes, but there is also potential to create risks or unexpected financial losses  Potential benefits from fintech are greater efficiency in financial markets that creates lower prices and increased customer and small business access to financial services  These can be achieved if innovative technology replaces traditional processes that are outdated or inefficient  For example, automation may be able to replace employees, and digital technology can replace physical systems and infrastructure  Cost savings from removing inefficiencies may lead to reduced prices, making certain services affordable to new customers  Some customers who previously did not have access to services—due to such things as the lack of information about creditworthiness or geographic remoteness—could also potentially gain access  Increased accessibility may be especially beneficial to traditionally underserved groups, such as low-income, minority, and rural populations  Fintech could also create or increase risks  Many fintech products have only a brief history of operation, so it can be difficult to predict outcomes and assess risk  It is possible certain technologies may not in the end function as efficiently and accurately as intended  Also, the stated aim of a new technology is often to bring a product directly to consumers and eliminate a "middle-man " However, that middle-man could be an experienced financial institution or professional that can advise consumers on financial products and their risks  In these ways, fintech could increase the likelihood that consumers engage in a financial activity and take on risks that they do not fully understand  Policymakers debate whether (and which) innovations can be integrated into the financial system without additional regulatory or policy action  Technology in finance largely involves reducing the costs or time involved in providing existing products and services, and the existing regulatory structure was developed to address risks from these financial products and activities  Existing regulation may be able to accommodate new technologies while adequately protecting against risks  However, there are two other possibilities  One is that some regulations may be stifling beneficial innovation  Another is that existing regulation does not adequately address risks created by new technologies  Some observers argue that regulation could potentially impede the development and introduction of beneficial innovation  For example, companies incur costs to comply with regulations  In addition, companies are sometimes unsure how regulators will treat the innovation once it is brought to market  A potential solution being used in other countries is to establish a regulatory "sandbox" or "greenhouse" wherein companies that meet certain requirements work with regulators as products are brought to market under a less onerous regulatory framework  In the United States, the CFPB has recently introduced a sandbox wherein companies can experiment with disclosure forms  Some are concerned that existing regulations may not adequately address certain risks posed by new technologies  Regulatory arbitrage—conducting business in a way that circumvents unfavorable regulations—may be a concern in this area  Fintech potentially could provide an opportunity for companies to claim they are not subject to certain regulations because of a superficial difference between how they operate compared with traditional banks  Another group of issues posed by fintech relates to cybersecurity (for general issues related to cybersecurity, see the " Cybersecurity " section above)  As financial activity increasingly uses digital technology, sensitive data are generated  Data can be used to accurately assess risks and ensure customers receive the best products and services  However, data can be stolen and used inappropriately, and there are concerns over privacy issues  This raises questions over ownership and control of the data—including the rights of consumers and the responsibilities of companies in accessing and using data—and whether companies that use and collect data face appropriate cybersecurity requirements  The Federal Reserve's monetary policy response to the financial crisis, the ensuing recession, and subsequent slow economic growth was to keep interest rates unusually low for an extraordinarily long time  It accomplished this in part using unprecedented monetary policy tools such as quantitative easing —large-scale asset purchases that significantly increased the size of the Federal Reserve's balance sheet  Recently, as economic conditions improved, the Federal Reserve took steps to normalize monetary policy such as raising its target interest rate and reducing the size of its balance sheet  A rising interest rate environment—especially following an extended period of unusually low rates achieved with unprecedented monetary policy tools—is an issue for banks because they are exposed to interest rate risk   A portion of bank assets have fixed interest rates with long terms until maturity, such as mortgages, and the rates of return on these assets do not increase as current market rates do  However, many bank liabilities are short term, such as deposits, and can be repriced quickly  So although certain interest revenue being collected by banks is slow to rise, the interest costs paid out by banks can rise quickly  In addition to putting stress on net income, rising interest rates can cause the market value of fixed-rate assets to fall  Finally, banks incur an opportunity cost when resources are tied up in long-term assets with low interest rates rather than being used to make new loans at higher interest rates  The magnitude of interest rate risks should not be overstated, as rising rates can potentially increase bank profitability if they result in a greater difference between long-term rates banks receive and short-term rates they pay—referred to as net interest margin   However, thus far into the Federal Reserve interest rate normalization process, this has not materialized  During 2018, the difference between long-term rates and short-term rates has generally decreased (known as a flattening of the yield curve )  Whatever changes may occur to various interest rates in the coming months and years, banks and regulators typically recognize the importance of managing interest rate risk, carefully examine the composition of bank balance sheets, and plan for different interest rate change scenarios  While banks are well-practiced at interest rate risk management through normal economic and monetary policy cycles, managing bank risk through a period of interest rate growth could be more challenging because rates have been so low for so long and achieved through unprecedented monetary policy tools  Because rates have been low for so long, many loans made in different interest rate environments that preceded the crisis have matured  Meanwhile, all new loans made in the past 10 years were made in a low interest rate environment  This presents challenges to banks seeking to hold a mix of loans with different rates  In addition, because the Federal Reserve has used new monetary policy tools and grown its balance sheet to unprecedented levels, accurately controlling the pace of interest rate growth may be challenging  

ground_truth: Technology companies are a major source of high-paying U.S. jobs, but some have questioned the sector's commitment to equal employment opportunity. EEOC provides federal oversight of nondiscrimination requirements by investigating charges of discrimination, and OFCCP enforces federal contractors' compliance with affirmative action requirements. GAO was asked to review workforce trends in the technology sector and federal oversight. This report examines (1) trends in the gender, racial, and ethnic composition of the technology sector workforce; and (2) EEOC and OFCCP oversight of technology companies' compliance with equal employment and affirmative action requirements. GAO analyzed workforce data from the American Community Survey for 2005-2015 and EEOC Employer Information Reports for 2007-2015, the latest data available during our analysis. GAO analyzed OFCCP data on compliance evaluations for fiscal years 2011-2016. GAO interviewed agency officials, researchers, and workforce, industry, and company representatives. The estimated percentage of minority technology workers increased from 2005 to 2015, but GAO found that no growth occurred for female and Black workers, whereas Asian and Hispanic workers made statistically significant increases (see figure). Further, female, Black, and Hispanic workers remain a smaller proportion of the technology workforce—mathematics, computing, and engineering occupations—compared to their representation in the general workforce. These groups have also been less represented among technology workers inside the technology sector than outside it. In contrast, Asian workers were more represented in these occupations than in the general workforce. Stakeholders and researchers GAO interviewed identified several factors that may have contributed to the lower representation of certain groups, such as fewer women and minorities graduating with technical degrees and company hiring and retention practices. Both the U.S. Equal Employment Opportunity Commission (EEOC) and the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) have taken steps to enforce equal employment and affirmative action requirements in the technology sector, but face limitations. While EEOC has identified barriers to recruitment and hiring in the technology sector as a strategic priority, when EEOC conducts investigations, it does not systematically record the type of industry, therefore limiting sector-related analyses to help focus its efforts. EEOC has plans to determine how to add missing industry codes but has not set a timeframe to do this. In addition, OFCCP's regulations may hinder its ability to enforce contractors' compliance because OFCCP directs contractors to set placement goals for all minorities as a group rather than for specific racial/ethnic groups. OFCCP also has not made changes to its establishment-based approach to selecting entities for review in decades, even though changes have occurred in how workplaces are structured. Without taking steps to address these issues, OFCCP may miss opportunities to hold contractors responsible for complying with affirmative action and nondiscrimination requirements. GAO makes 6 recommendations, including that EEOC develop a timeline to improve industry data collection and OFCCP take steps toward requiring more specific minority placement goals by contractors and assess key aspects of its selection approach. EEOC neither agreed nor disagreed with its recommendation, and OFCCP stated the need for regulatory change to alter placement goal requirements. GAO continues to believe actions are needed, as discussed in the report.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: The technology sector has major employment hubs across the country, including the San Francisco Bay area, the greater New York City region, and the Washington-Arlington-Alexandria region (see fig  1)  In addition, technology workers are employed at companies outside the technology sector, such as in the retail or financial services industries  For example, a large retail company may require technology workers to create and manage their online sales activities, but the company itself would be considered part of the retail industry  Private companies are generally prohibited by federal law from discriminating in employment on the basis of race, color, religion, sex, national origin, age, and disability status  Additionally, federal contractors and subcontractors are generally required to take affirmative action to ensure that all applicants and employees are treated without regard to race, sex, color, religion, national origin, sexual orientation, and gender identity, and to employ or advance in employment qualified individuals with disabilities and qualified covered veterans  EEOC is responsible for enforcement of federal antidiscrimination laws, and OFCCP enforces affirmative action and nondiscrimination requirements for federal contractors  EEOC and OFCCP have some shared activities and have established a memorandum of understanding (MOU) to minimize any duplication of effort  For example, under the MOU, individual complaints filed with OFCCP alleging discrimination under Title VII are generally referred to EEOC  In addition, on occasions when EEOC receives a complaint not within its purview, such as cases that involve veteran status, but over which it believes OFCCP has jurisdiction, it will refer the complaint to OFCCP  The EEOC, created by Title VII of the Civil Rights Act of 1964, enforces federal laws that prohibit employment discrimination on the basis of race, sex, color, religion, national origin, age, and disability  As the nation’s primary enforcer of antidiscrimination laws, EEOC investigates charges of employment discrimination from the public, litigates major cases, and conducts outreach to prevent discrimination by educating employers and workers  In fiscal year 2016, EEOC received about 91,500 charges, secured more than $482 million for victims of discrimination, and filed 114 lawsuits  According to EEOC, many states, counties, cities, and towns have their own laws prohibiting discrimination, usually similar to those EEOC enforces, as well as agencies responsible for enforcing those laws, called Fair Employment Practices Agencies  However, in some cases, these agencies enforce laws that offer greater protection to workers  An individual can file a charge with either the EEOC or with a Fair Employment Practices Agency  When an individual initially files with a Fair Employment Practices Agency that has a worksharing agreement with the EEOC, and the allegation is covered by a law enforced by the EEOC, the Fair Employment Practices Agency will dual file the charge with EEOC (meaning EEOC will receive a copy of the charge), but will usually retain the charge for processing  If the charge is initially filed with EEOC and the charge is also covered by state or local law, EEOC dual files the charge with the state or local Fair Employment Practices Agency (meaning the Fair Employment Practices Agency will receive a copy of the charge), but EEOC ordinarily retains the charge for processing  EEOC also pursues a limited number of cases each year designed to combat systemic discrimination, defined by the agency as patterns or practices where the alleged discrimination presented by a complainant has a broad impact on an industry, profession, company, or geographic location  EEOC can also initiate a systemic investigation under Title VII with the approval of an EEOC commissioner, called a “commissioner charge”, provided the commissioner finds there is a reasonable basis for the investigation  In addition, EEOC district directors can approve systemic investigations, called “directed investigations” which are initiated by EEOC field office directors under the Age Discrimination in Employment Act and the Equal Pay Act  Under Title VII, EEOC generally requires that large employers and non- exempt federal contractors file Employer Information Reports (EEO-1 reports) annually, which collect employees’ demographic data by business location on sex, race, and ethnic group for 10 occupational job categories  According to EEOC documentation, EEO-1 data are used in investigations of Title VII violations, litigation, research, comparative analyses, class action suits, and affirmative action plans  The OFCCP is responsible for ensuring that the nearly 200,000 federal contractor establishments comply with federal nondiscrimination and affirmative action requirements  Under Executive Order 11246 and other federal laws and regulations, covered federal contractors and subcontractors are prohibited from discriminating in employment on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin and are required to take affirmative action to help ensure that all applicants and employees are treated without regard to these factors  In general, OFCCP’s regulations require covered contractors to comply with certain recordkeeping and reporting requirements, and provide for enforcement procedures such as compliance evaluations and complaint investigations to assist OFCCP in ensuring federal contractor compliance with these regulations  Among other provisions, OFCCP’s regulations generally require that covered contractors prepare and maintain an affirmative action program (AAP)  Under OFCCP’s regulations, an AAP is a management tool that is designed to ensure equal employment opportunity, with an underlying premise that the gender, racial, and ethnic makeup of a contractor’s workforce should be representative of the labor pools from which the contractor recruits and selects  Companies must create an AAP for each business establishment—generally, a physical facility or unit that produces the goods or services, such as a factory, office, or store for the federal contractor  An AAP will also include any practical steps to address underrepresentation of women and minorities, such as expanding employment opportunities to underrepresented groups  Covered contractors must also comply with certain recordkeeping requirements, including records pertaining to hiring, promotion, lay off or termination, rates of pay, and applications, among other records  OFCCP’s enforcement program represents the majority of the agency’s activity and is carried out primarily by using compliance officers, who evaluate contractors’ compliance with various requirements, according to agency officials  In addition to conducting compliance evaluations, OFCCP also conducts investigations in response to complaints  In 2016, we reported that according to OFCCP officials, responding to complaints accounted for close to 16 percent of OFCCP’s enforcement activities  OFCCP selects contractor establishments for evaluations based on a number of neutrally applied factors, such as employee count at the establishment, contract value, or contract expiration date  We previously found that OFCCP reviews, on average, 2 percent of federal contractor establishments annually  As we previously reported, as part of its compliance evaluations, OFCCP is to review the selected contractor’s hiring, promotion, compensation, termination, and other employment practices to determine whether contractors are maintaining nondiscriminatory hiring and employment practices  OFCCP conducts evaluations at the establishment level  When a contractor establishment is selected for evaluation, OFCCP sends the contractor a “scheduling letter” requesting the AAP and supporting data, such as the percentage of women and minority staff at the workplace by job group  Then, a compliance officer is to conduct a desk audit, which is an off-site review of the submitted materials  If necessary, the compliance officer may also conduct an on-site review or further off-site analysis to make a final determination as to whether the contractor is in compliance  In addition to looking at whether federal contractors maintain nondiscriminatory hiring and employment practices, which can result in finding discrimination violations, OFCCP also frequently finds other types of violations, such as failure to keep necessary records or conduct annual reviews of equal employment and affirmative action efforts  These findings by the agency often require administrative changes on the part of the contractor, such as improved record-keeping  There are many different forms of remedies for discrimination violations, including financial, employment, and organizational change remedies  Although rare, under some circumstances, OFCCP may bar a contractor from doing business with the government  From 2005 to 2015, the estimated number of workers in the technology workforce—people who worked in mathematics, computing, or engineering occupations—increased at a higher rate (24 percent) than the estimated number of workers in the general workforce (9 percent), according to ACS data  In 2015, the technology workforce comprised an estimated 7 5 million workers, an increase of slightly over 1 4 million workers since 2005  (For a complete list of the occupations we include as technology occupations, see appendix II)  Most technology workers have a college degree and have a higher median income than workers in the general workforce  Specifically, in 2015, an estimated 69 percent of technology workers held at least a bachelor’s degree, compared to 31 percent of workers in the general workforce  In 2015, the estimated median income for technology workers was $81,000 compared to $42,000 for the general workforce  From 2005 to 2015, the percentage of women in the technology workforce remained flat and women remained a smaller proportion of the technology workforce compared to their representation in the general workforce  In 2015, women represented 22 percent (about 1 6 million workers) of workers in technology occupations, compared to 48 7 percent of workers in the general workforce (see fig  2)  Although the estimated percentage of minority technology workers as a whole had grown since 2005, we found that this trend did not apply to Black technology workers  Specifically, from 2005 through 2015, although the number of Black workers increased as the technology workforce grew, there was no statistically significant change in their representation as a percentage of the entire technology workforce  In contrast, from 2005 to 2015, Hispanic and Asian technology workers had statistically significant increases in their representation in the technology workforce  Even with the increase in their numbers in the technology workforce, Black and Hispanic technology workers remained a smaller proportion of these workers compared to their representation in the general workforce  In contrast, Asian workers were an increasing share of the technology workforce, where they remained more represented than they were in the general workforce (see fig  3)  We found that when we examined gender representation for each minority group, both Black and Hispanic men and women were less represented in the technology workforce compared to their representation in the general workforce  The same was true for White women, whereas White men, Asian men, and Asian women were more represented in the technology workforce compared to their representation in the general workforce (see fig  4)  We defined the technology sector as those companies that have the highest concentration of technology workers and are in such industries as computer systems design and software publishing  Companies categorized as outside the technology sector, for example, retail or finance companies, may still employ some technology workers  However, we found differences in median incomes for technology workers within and outside the technology sector  In 2015, technology workers employed in the technology sector earned an estimated median income of $89,000 compared to median incomes of $78,000 for those working outside the technology sector  We also compared the characteristics of technology workers within the technology sector and outside the technology sector, and found male and Asian technology workers were relatively more represented in the technology sector than outside the technology sector  Similar to the lower representation of female, Black, and Hispanic technology workers in technology occupations, we found technology workers from these groups were also more likely to work outside the technology sector than in the technology sector  For example, according to our analysis of 2015 ACS data, women represented an estimated 18 percent of all technology workers employed in the technology sector, compared to 25 percent of all technology workers employed outside the technology sector (see fig  5)  White technology workers were also more represented outside the technology sector than within the technology sector  Companies in the technology sector also employ non-technical workers such as sales people, and the lower representation of women and certain minorities in the technology sector was also present in such non-technical job categories  According to our analysis of EEO-1 data, women were less represented across the full range of management and non- management positions at companies within the technology sector, including at leading technology companies, compared to their representation in companies outside the technology sector  We determined this by comparing specific occupations at companies both within and outside the technology sectors using 2015 EEO-1 data  For example, women held about 19 percent of senior-level management positions at companies in the technology sector compared to nearly 31 percent of such positions at companies outside the technology sector in 2015  Women were also less represented in all of the remaining job categories (mid-level managers, professionals, technicians, and all other jobs) in the technology sector  (See fig  6 ) Comparing EEO-1 data at three points in time for 2007, 2011, and 2015, we found women’s representation in management positions as well as among professionals and technicians at companies within the technology sector remained at about the same level, and decreased for “all other jobs” (see table 1)  Similar to women, Black and Hispanic workers were less represented across multiple job categories in companies within the technology sector compared to those outside the technology sector (see fig 7)  For example, 1 8 percent of senior level managers in the technology sector were Black compared to 3 4 percent of senior level managers in all other sectors  Appendix IV provides percentages for each minority group in different job categories within and outside the technology sector  The lower representation of Black workers in the technology sector relative to their representation in other sectors was consistent across all job categories (mid-level managers, professionals, technicians, and “all other jobs”)  Hispanic workers were less represented in the technology sector compared to outside the technology sector across all job categories (senior and mid-level managers, professionals, technicians, and “all other jobs”)  Compared to their representation across job categories within the technology sector in general, Black and Hispanic workers had slightly greater representation at the leading technology companies in senior management and technician categories, and lower representation among mid-level managers, professionals, and holders of “all other jobs ” Asian workers comprised a greater proportion of managerial and professional roles in the technology sector than in other sectors, according to our analysis of 2015 EEO-1 data  Asian workers represented 11 0 percent of senior level managers in the technology sector compared to 4 3 percent in industries outside the technology sector  This higher representation of Asian workers in the technology sector was consistent among mid-level managers, professionals and technicians  Asian workers were more represented in the same categories at the leading technology companies  However, a lower proportion of Asian workers held senior management positions compared to their representation in professional positions in both the technology sector and leading technology companies  Further, the proportion of Asian workers in mid-level management positions was also lower than their representation in professional positions, from which mid-level managers might be selected, in both the technology sector and leading technology companies  In contrast, a higher proportion of White workers were in senior and mid- level management positions compared to their representation in professional positions in both the technology sector and leading technology companies  Comparing EEO-1 data at three points in time—2007, 2011, and 2015— we saw varied representation across job categories in the technology sector by race/ethnicity  For example, Black workers decreased in their representation in all job categories in the technology sector from 2007 to 2015  In contrast, Hispanic and Asian workers increased in their representation in all job categories we examined from 2007 to 2015 (see table 2)  Several factors may contribute to the lower representation of female, Hispanic, and Black workers in the technology workforce and at companies in the technology sector, based on research and interviews with researchers and representatives from workforce and industry organizations and technology companies  These include the lower diversity of degree earners in technology-related fields, and company- based factors such as hiring practices and retention of women and underrepresented minorities  The smaller proportion of women in the technology workforce may reflect the number of women earning technology-related degrees  Slightly over two-thirds of technology workers report having earned their bachelor’s degree in a computer, engineering, mathematics, or technology field  However, according to our analysis of 2014 IPEDS data, the percentage of technology-related bachelor’s and master’s degrees earned by women is far less than for men, although women were comparable to men in their receipt of science, technology, engineering, and math (STEM) degrees, and surpassed men in obtaining degrees in all other fields  In 2014, about 60,000 women were awarded technology-related bachelor’s or master’s degrees (compared to about 50,000 in 2004) and about 190,000 men were awarded such degrees (compared to about 147,000 in 2004)  (See fig  8 ) An estimated 218,000 technology workers were added to the technology workforce in 2015, according to our analysis of 2015 American Community Survey data from the U S  Census Bureau  In addition, technology degrees are also issued at the associate’s level  Two researchers told us that women often have the academic preparation to enter into technology-related degree programs, but they may choose not to pursue such degrees because of instances of gender bias within technology classes  Our prior work reported on studies that found women leave STEM fields at a higher rate than their male peers, citing one study that found women leave STEM academic positions at a higher rate than men in part due to dissatisfaction with departmental culture, faculty leadership, and research support  Further, a 2012 consulting firm report found that businesses viewed as male-dominated tended to attract fewer women at the entry level  In addition, according to our analysis of 2014 IPEDS data, three minority racial or ethnic groups each constituted 10 percent or fewer of bachelor’s and master’s degree earners in a technology-related field  Specifically, among the 202,200 earners of degrees in a technology-related field in 2014, there were about 20,000 Hispanic recipients, 13,000 Black recipients, and 18,000 recipients who were Multiracial or other race, which includes American Indian or Alaska Native, Other or Unknown Race, and Two or more Races, i e  respondents who selected one or more racial designations  Among all minority groups, Asian students, including Pacific Islander, earned the highest proportion of technology- related degrees (about 24,000 individuals)  (See fig  9)  One barrier to entry into technology degree paths for Black and Hispanic students may be lower likelihood of access to preparatory academic programs in secondary school  In 2016, we reported that the K-12 public schools in the United States with students who are mostly Black or Hispanic offered disproportionately fewer math and science classes for their students  One researcher told us some colleges and universities, to help these students be academically successful, provide additional academic support such as tutoring to help bridge knowledge gaps  To address the uneven access to preparatory math and science classes, representatives from five technology companies told us they have started to invest in exposing Black and Hispanic children to technology occupations by, for example, developing online resources targeted to them and their parents and creating partnerships with secondary schools to improve their academic preparation in computer science  However, we have previously also reported that the number of students graduating with STEM degrees may not be a good measure of the supply of STEM workers because students often pursue careers in fields different from the ones they studied  For example, a lower percentage of women who obtained technology-related degrees became technology workers compared to men who earned the same degrees, according to our analysis of 2015 ACS data  Specifically, among women who earned technology degrees, an estimated 33 percent worked as a technology worker compared to 45 percent of men who earned technology degrees  Several representatives we interviewed from workforce and industry organizations and technology companies told us that recruitment practices may also have affected diversity in the technology workforce  For example, representatives from three workforce and industry organizations said technology companies tend to recruit from a select number of universities and colleges, thereby limiting their pool of potential applicants  To address this, representatives from several of the technology companies we interviewed told us they had changed recruitment practices and offered internships targeted to underrepresented groups  For example, representatives of four technology companies told us that their companies had expanded recruitment to include more schools  Representatives from two companies told us they offer programs such as summer and semester internships for which the company actively recruits from Historically Black Colleges and Universities and other specific schools to increase its pool of diverse candidates  In addition, representatives from workforce organizations and technology companies discussed concerns and strategies to address companies’ hiring practices and internal cultures that may limit workforce diversity  For example, one of these representatives said that technology companies often offer financial incentives to current employees to make referrals for new hires, which can result in reliance on social networks  These networks may be largely comprised of the same race and this practice therefore makes it harder for potential candidates from demographically different groups to have their resumes reviewed  Another workforce organization representative reported that some hiring managers filter out eligible candidates if their background and qualifications are not the same as those of previously successful employees  To address these concerns, representatives from one technology company told us that they had moved away from depending on referrals since this practice may result in leaders hiring people within their own networks, which generally does not increase diversity of gender or race/ethnicity  In addition, representatives from another company said they plan to begin reviewing resumes with names removed to limit bias by the reviewer  Further, representatives we interviewed from three technology companies told us they offer training to employees to help employees identify their own, unconscious biases  Other factors may affect retention of women and underrepresented minorities  For example, a representative from a workforce organization said that women leave technology occupations at a higher rate than men because they feel as if they have not been given the same opportunities for promotion and advancement within the company  A 2016 study that examined women in engineering and science found that women’s concerns about pay and promotion are often an issue in male-dominated fields regardless of the industry  Further, this study found that retention difficulties become more severe as the share of men in the workforce increased and that affected women’s pay and promotion  Representatives from one company told us another challenge is the lack of Black workers at the top levels, which might make it more difficult for Black employees in particular to see a leadership path  Representatives we interviewed from five technology companies told us they had implemented efforts to increase retention and promotion rates among minority and female workers, for example, by developing a diversity and inclusion newsletter, employee resource groups with executive sponsors, and internal training and classes for employees to improve their readiness to be promoted  Representatives from five technology companies told us that commitment of top leadership is an important factor that can help women and underrepresented minorities in the technology sector  For example, representatives from one company told us that top management support for diversity efforts, such as setting hiring goals, can help move a company in the direction of achieving representation goals and that leadership is very important to this effort  Representatives from several companies told us that there is often a business case for such changes: These companies work in a diverse, global environment and strive to make better products for diverse users  However, our prior work on workforce diversity in the financial services sector found that some diversity initiatives faced challenges gaining the "buy-in" of key employees, such as the middle managers who are often responsible for implementing such programs  According to EEOC officials, EEOC primarily oversees compliance with equal employment opportunity requirements by investigating workers’ individual charges of employment discrimination filed against companies  EEOC has publicly acknowledged the low levels of diversity in the technology sector  However, we were unable to identify a specific number of charges received by EEOC against companies in industries that are part of this sector because EEOC does not require investigators to record the industry of the charged company  EEOC’s database of charges and enforcement actions—the Integrated Mission System (IMS)—has a data field for the North American Industry Classification System (NAICS) industry code, the standard used by federal statistical agencies in classifying business establishments  However, we found that it is completed for only about half the entries in the system  EEOC officials in both the San Francisco and New York district offices told us that, while they cannot readily identify individual charges against technology companies, they believe they have received far fewer charges against technology companies than they would have expected given the public attention to the issue of diversity in the technology sector  In terms of systemic cases, according to EEOC, as of June 2017, the commission had 255 systemic cases pending since fiscal year 2011 involving technology companies (13 of these were initiated as commissioner charges and 8 were directed investigations involving age discrimination or pay parity issues)  Officials from the New York region reported that they had seen an increase in systemic cases against technology companies in the past 3 years, largely involving practices of information technology staffing firms  Several EEOC officials we interviewed noted that technology workers may be initiating few complaints at the federal level due to factors such as fear of retaliation from employers or the availability of other employment or legal options  According to EEOC officials, fear of retaliation can affect charges across sectors and, given the growth in the technology workforce, an individual who feels discriminated against may simply leave the company because there are many other opportunities for individuals with technical skills  They also said that technology workers may generally have greater wealth and can afford to hire private attorneys to sue in state court rather than go through the EEOC  Moreover, they said that some states, including California, have stronger employment discrimination laws that allow for better remedies than federal laws, which could lead employees to file charges at the state level rather than with the EEOC  In addition, EEOC has acknowledged in a 2016 report that binding arbitration policies, which require individuals to submit their claims to private arbiters rather than courts, can also deter workers from bringing discrimination claims to the agency, leaving significant violations in entire segments of the workforce unreported  The report stated that an increasing number of arbitration policies have added bans on class actions that prevent individuals from joining together to challenge practices in any forum  The report concluded that the use of arbitration policies hinders EEOC’s ability to detect and remedy potential systemic violations  Researchers report that the use of such clauses has grown and data on federal civil filings for civil rights employment cases reflect a marked reduction in the number of such filings  Beyond pursuing charges, EEOC has taken some steps to address diversity in the technology sector including research and outreach efforts  In May 2016, citing the technology sector as a source for an increasing number of U S  jobs, EEOC released a report analyzing EEO-1 data on diversity in the technology sector in tandem with a commission meeting raising awareness on the topic  In addition, EEOC’s fiscal year 2017- 2021 Strategic Enforcement Plan identified barriers to hiring and recruiting in the technology sector as a strategic priority  EEOC has also been involved in outreach efforts with the technology sector  For example, the EEOC Pacific Region described more than 15 in-person or webinar events since 2014 in collaboration with OFCCP and local organizations focused on diversity in the technology sector  The topics of these events included equity in pay and the activities of these two agencies in enforcing nondiscrimination laws  Finally, in fall 2016, EEOC initiated an internal working group to identify practices to help improve gender and racial diversity in technology, but as of June 2017 had no progress to report  OFCCP’s regulations require covered federal contractors to take proactive steps to ensure equal employment opportunity  OFCCP annually conducts routine evaluations of selected federal contractors, which includes those in the technology sector, for compliance with federal nondiscrimination and affirmative action requirements  To the extent that technology contractors are selected for evaluation through OFCCP’s normal selection process, these contractors are assessed for compliance with nondiscrimination and affirmative action laws as are other selected contractors  While evaluation of technology contractors occurs in the course of OFCCP’s routine activities, OFCCP does not currently use type of industry as a selection factor, according to officials  We also found that few (less than 1 percent) of OFCCP’s 2,911 closed technology contractor evaluations from fiscal years 2011 through 2016 resulted in discrimination violations, though 13 percent resulted in other violations, such as record- keeping violations and failure to establish an affirmative action program (AAP)  An AAP is a key tool OFCCP requires contractors to complete to ensure equal employment opportunity  The remaining 86 percent of evaluations either found no violations or ended in administrative closure  Technology contractor evaluations that had discrimination violations resulted in back pay, salary adjustments, or other benefits totaling more than $4 5 million for 15,316 individuals (averaging about $300 per award) for fiscal years 2011 through 2016  The vast majority of discrimination violations were on the basis of gender or race/ethnicity rather than disability or veteran status  Corrective actions OFCCP identified for federal technology contractors over this timeframe also included requiring contractors to fill a total of 410 job vacancies as they arise with applicants who had been denied employment on the basis of discrimination  In addition, OFCCP recently filed three complaints against technology companies  According to our analysis, OFCCP conducted evaluations on 36 of the 65 leading technology companies from fiscal year 2011 through fiscal year 2016  During this timeframe there were 272 reviews of establishments— physical business locations—affiliated with these 36 companies  Based on these evaluations, 15 of the 36 companies had administrative violations, and 2 of the 36 also had discrimination violations  As a result of the discrimination findings against these leading technology companies, 541 individuals received monetary benefits totaling $783,387 (an average of $1,448 per award)  In terms of other steps to conduct oversight of the technology sector, OFCCP officials in the Pacific Region said they are hiring compliance officers with legal training to be better able to address needs for reviews in the technology sector, such as responding to lawyers representing technology contractors  Officials in both the Pacific and Northeast regions work closely with statisticians and labor economists on their cases, an effort officials said has increased over the past few years  OFCCP has also requested funding in its fiscal year 2018 congressional budget justification to establish centers in San Francisco and New York that would develop expertise to handle large, complex compliance evaluations in specific industries, including information technology  We found that by not requiring an industry code in its investigations data, EEOC cannot analyze charge data by industry to help identify investigation and outreach priorities, in contradiction to EEOC strategic planning documents and EEOC Inspector General reports, which have emphasized the importance of doing so  By not requiring the use of the NAICS code for each entry in IMS, EEOC is limited in its ability to use these data for the purposes of identifying charges by industry sector and conducting sector-related analyses  Officials were aware of substantial gaps in coding of charges by industry and acknowledged limitations in the commission’s ability to analyze its investigations data by industry  However, officials expressed concern that routinely creating more complete records of the companies against which charges had been filed would require investigators to divert attention from their efforts to investigate charges  EEOC officials explained that the charging party provides initial information on the respondent company and requiring EEOC personnel to generate this information would slow down the process  They said their priority is to investigate individual charges, not to address larger trends or target specific industries  “The Strategic Enforcement Plan recommends using EEOC data to allow our enforcement and outreach efforts to focus on areas of significant concern  This might include tailoring outreach efforts for industries that experience greater likelihood of certain charges or informing enforcement decisions based on knowledge that certain industries have persistent problems, such as harassment  The data maintained in IMS provide a rich resource of information that can be used to explore the characteristics of industries that appear to have higher levels of certain allegations than comparative industries ” In addition, reports completed by the Urban Institute for the EEOC Office of Inspector General in 2013 and 2015 similarly recommended analysis of charge data, including by industry, to help identify priorities and measure performance  While EEOC has plans to review a year of IMS data to clean it and determine how best to add missing industry codes, among other objectives, officials could not provide a specific timeframe for when this review would begin and end  Standards for internal control in the federal government state that management should use quality information to achieve the agency’s objectives and objectives should be defined in specific terms so they are understood at all levels of the entity  This involves clearly defining what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement  Efforts to scrub these data and identify missing codes could help EEOC determine how to collect industry information on an ongoing basis for all entries  Doing so would also help EEOC determine the level of NAICS code that would be feasible and useful for investigators to identify and input into IMS  Without analyzing its data on charges across industries, EEOC’s ability to proactively identify priorities for its outreach and enforcement resource use is limited  We found that OFCCP also faces challenges that may hinder the agency’s oversight of technology companies  Specifically, OFCCP reported facing delays in receiving information from federal contractors, including technology companies, but has not yet evaluated whether its own policies and practices also impede its efforts to hold federal technology contractors responsible for the legal requirements to take affirmative action and not discriminate against protected groups  In addition, OFCCP regulations do not require federal contractors to disaggregate data for the purpose of determining placement goals for hiring, which may hinder contractors’ efforts to implement effective affirmative action programs  OFCCP has not analyzed delays in obtaining information from contractors OFCCP officials told us that they face delays in obtaining complete, accurate, and timely documentation from federal contractors, including technology companies, as part of the compliance review process  They said this limited their access to critical information and hindered OFCCP’s ability to determine whether discrimination had occurred  Officials in the Pacific Region reported that when issues are identified during OFCCP’s initial review that will require additional data, the data requests can be extensive  Consequently, technology contractors are taking longer to submit complete and accurate data that are needed to conduct analyses of the contractor’s workforce  In addition, officials in both the Pacific and Northeast regions reported that companies may not provide raw data as requested, or provide access to employees for OFCCP to interview, which is part of the compliance review process  Using 2015 OFCCP compliance evaluation data, we previously reported that close to 85 percent of contractor establishments across all sectors did not submit an AAP within 30 days of being scheduled for an OFCCP compliance evaluation, as required by OFCCP policy  Officials told us of the potential need for a more flexible set of investigatory tools or sanctions, such as subpoena power to speed up data-gathering or penalties for delays in providing information, in order to obtain accurate and timely information  In the case of incomplete data, OFCCP officials said one option is to enter into an agreement with the contractor whereby the contractor will gather the missing data, and OFCCP will monitor the contractor’s efforts and review detailed records at a later date  However, they said that such an agreement could give the contractor an opportunity to modify the data in the contractor’s favor  Currently, OFCCP’s primary sanction is the threat of debarment, which makes a company ineligible to receive future federal contracts  At the same time, OFCCP officials acknowledged there may additionally be delays in their own review processes  In prior work, we’ve reported concerns by contractors and industry groups about lengthy and expansive OFCCP evaluations  However, OFCCP has not analyzed its data on closed evaluations to assess the cause of delays, which would help determine whether changes should be made to its internal processes or if stronger sanctions to obtain information from contractors are needed  Internal control standards state that management should identify, analyze, and respond to risks related to achieving its objectives  Further, it states that management should design appropriate mechanisms to enforce its directives to achieve those objectives and address related risks  Without more information on the root cause of the delays, these delays may continue, straining resources and inhibiting OFCCP’s efforts to identify potential discrimination  “An affirmative action program is a management tool designed to ensure equal employment opportunity  A central premise underlying affirmative action is that, absent discrimination, over time a contractor’s workforce, generally, will reflect the gender, racial and ethnic profile of the labor pools from which the contractor recruits and selects  Affirmative action programs contain a diagnostic component which includes a number of quantitative analyses designed to evaluate the composition of the workforce of the contractor and compare it to the composition of the relevant labor pools  Affirmative action programs also include action- oriented programs  If women and minorities are not being employed at a rate to be expected given their availability in the relevant labor pool, the contractor’s affirmative action program includes specific practical steps designed to address this underutilization ” “The placement goal-setting process       contemplates that contractors will, where required, establish a single goal for all minorities  In the event of a substantial disparity in the utilization of a particular minority group or in the utilization of women or women of a particular minority group, a contractor may be required to establish separate goals for those groups ” According to OFCCP officials, a contractor may be required to establish separate goals for particular minority groups as part of a compliance review  We found, however, that OFCCP’s regulations do not require federal contractors to disaggregate demographic data for the purpose of establishing placement goals in their AAP  This may hinder their efforts to implement effective AAPs, which are designed to assist the company in achieving a workforce that reflects the gender, racial, and ethnic profile of the labor pools from which the contractor recruits and selects  OFCCP officials in headquarters and in the field said, based on their experience evaluating companies’ compliance, it was not common for companies to have placement goals disaggregated by race and ethnicity in their AAPs  A diversity and inclusion officer we interviewed from one large technology contractor noted that the requirement in the AAP to identify the need for placement goals for minorities as a whole does not address underrepresentation in certain minority groups  According to the officer, the company does not count Asian workers in setting the company’s diversity goals because Asians are well represented and the company believes it should set a placement goal for groups for which the company knows it needs to make progress  Citing comments received during development of other regulations, OFCCP officials cautioned that an analysis of utilization disaggregated by race/ethnicity may be more challenging for smaller companies with fewer employees  Further, looking at trends in diversity for minorities as a whole may not assist a company’s affirmative action efforts to identify groups that need particular outreach or support  Specifically, our analysis of workforce data found differences in representation for Black and Hispanic workers in the technology workforce compared to Asian workers  Under the current AAP regulations, companies may opt not to detect and address underrepresentation of particular minority groups since OFCCP does not require placement goals disaggregated by race/ethnicity  While OFCCP may be able to detect underrepresentation of particular minority groups during its reviews, the office reviews only 2 percent of federal contractor establishments each year  OFCCP officials said that they would need to amend their regulations in order to require disaggregated race/ethnicity information for placement goals on AAPs  The officials said disaggregating race in placement goals could help an establishment determine how to tailor outreach accordingly or better identify impediments to its equal employment opportunity efforts  However, they have not pursued this regulatory change because of competing priorities on their regulatory agenda  OFCCP’s mission includes holding federal contractors responsible for the legal requirements to take affirmative action and not discriminate against protected groups  However, not requiring contractors to set placement goals for each minority group may hinder OFCCP’s ability to effectively achieve this mission  OFCCP has not reviewed key aspects of its current approach to evaluations OFCCP officials report the agency intends to incorporate additional information on gender, racial, and ethnic disparities by industry into its compliance evaluation selection process, but we found the methodology to determine the disparities may have weaknesses  We have previously reported on the challenges OFCCP faces with its enforcement efforts, and identified additional areas that may limit OFCCP’s enforcement of federal contractors’ equal employment and affirmative action efforts  For example, our 2016 report found that OFCCP’s weak compliance evaluation selection process, reliance on voluntary compliance, and lack of staff training create several challenges to its enforcement efforts  This report found that because OFCCP was not able to identify which factors are associated with risk of noncompliance, the agency does not have reasonable assurance that it is focusing its efforts on those contractors at greatest risk of not following nondiscrimination or affirmative action requirements  OFCCP agreed with recommendations we made to address these areas and detailed steps the agency would take  In particular, to strengthen its compliance evaluation process to select contractors at greatest risk of potential discrimination, the agency stated that it planned to incorporate information on pay disparities and employment disparities  OFCCP officials indicated this information would be based on analysis of gender and race/ethnicity by industry using ACS data and EEO-1 compensation data that was to be collected beginning March 2018  However, in August 2017, the Office of Management and Budget issued a memo suspending the pay-related data collection aspects of the EEO-1 form  Despite this change, OFCCP officials said they are exploring other options for focusing on compensation disparities by industry, including through the use of ACS data, administrative data, a previous study conducted by the Department of Labor, as well as options proposed by contractors  We also found OFCCP’s current methodology for identifying disparities by industry with the ACS data may have some weaknesses that could affect the accuracy of the outcomes  For example, its reliance on the broadest industry level available may not sufficiently identify specific industries at elevated risk  Further, the methodology includes future plans to conduct the analysis for metropolitan areas  Given the importance of regional and local labor markets for assessing affirmative action efforts, regional and local analysis should also be completed before OFCCP incorporates this analysis into its selection process  It is important that OFCCP use reliable information in modifying its basic processes and setting priorities  For the reasons cited earlier regarding the importance of using quality information to make management decisions, it is important that OFCCP assess the quality of the methods for its analysis of employment disparities among industries  Without doing so, OFCCP may not accurately identify industries at greatest risk of potential noncompliance with nondiscrimination and affirmative action requirements so it can focus its limited investigation resources most effectively  Further, according to OFCCP officials, although the agency has made slight changes to various thresholds and factors for its selection process, the agency has not made any significant changes to the selection process for about 10 years, and has made no changes to its establishment-based approach since OFCCP was founded in 1965  While OFCCP currently grounds its review of a contractor in a particular physical establishment, OFCCP officials acknowledged the changing nature of a company’s work can involve multiple locations and corresponding changes in the scope of hiring and recruitment  Officials we interviewed from five of our eight selected technology companies discussed their work spread across locations, including the United States or overseas, and the related challenges they face with OFCCP’s establishment-based approach to reviews  One company representative said the AAP is not useful because site specific plans do not connect to business decisions  However, OFCCP has not reviewed the implications for the effectiveness of its mission of continuing with its establishment-based approach to conducting compliance evaluations  In addition, OFCCP officials acknowledged their inability, in identifying establishments for review, to consistently identify and include all subcontractors to which OFCCP rules should apply  They said the agency has not assessed the potential significance of any omissions of subcontractors from the oversight process  Internal control standards state that management should identify risks throughout the entity related to achieving its defined objectives to form a basis for designing risk responses, as well as the importance of periodically reviewing policies, procedures and related control activities for continued relevance and effectiveness in achieving the agency’s objectives  OFCCP officials said they have informally discussed how to adjust their work based on how work is performed in today’s economy—with virtual sites, workplace flexibilities, and nontraditional forms of employment  However, due to competing priorities, they have not conducted a formal review of these key aspects of its current approach to selecting entities for review  They acknowledged such a review would be useful  Without assessing its current approach to its establishment-based reviews and identification of all relevant subcontractors, OFCCP does not have reasonable assurance that its approach can identify discrimination occurring within the companies it oversees and may be missing opportunities to identify more effective practices or adjust its methods to external changes  While OFCCP has offered an option—the Functional Affirmative Action Program (FAAP)—for companies to move away from establishment- based reviews and which may be more appropriate for some multi– establishment contractors, uptake has been low and the agency has not conducted an evaluation of this program  Since 2002, OFCCP has allowed companies to create FAAPs, with OFCCP approval, which are based on a business function or unit that may exist at multiple establishments  As of May 2017, 73 companies across all industries had FAAPs in place  Further, some of the companies we interviewed were unaware that the FAAP was an option or believed it was cumbersome to establish given the complexity of their workforce  Asked why the FAAP has not been more broadly adopted, OFCCP officials hypothesized it could have to do with a requirement intended to ensure that companies with FAAPs would be reviewed at least as often as others, but that may result in these companies being reviewed more often than most  Standards for internal control for government agencies state that management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives  Reviewing and refining the FAAP program could help OFCCP improve its ability to achieve its objectives and may provide broader insight for OFCCP’s overall enforcement approach  Jobs in the high paying technology sector are projected to grow in coming years  Female, Black, and Hispanic workers, however, comprised a smaller proportion of technology workers compared to their representation in the general workforce from 2005 through 2015, and have also been less represented among technology workers inside the technology sector than outside it  Both EEOC’s and OFCCP’s mission is to combat discrimination and support equal employment opportunity for U S  workers; however, weaknesses in their processes impact the effectiveness of their efforts  When conducting investigations, EEOC has not been consistently capturing information on industry codes  This impedes its ability to conduct industry sector analysis that could be used to more effectively focus its limited enforcement resources and outreach activities  Similarly, OFCCP faces delays in its compliance review process but it has not analyzed its closed evaluations to understand the causes of these delays and whether its processes need to be modified to reduce them  In addition, as part of their affirmative action programs federal contractors are only required to set placement goals for all minorities in general  By not requiring contractors to disaggregate demographic data for the purpose of establishing placement goals, OFCCP has limited assurance that these contractors are setting goals that will address potential underrepresentation in certain minority groups  Further, OFCCP plans to incorporate information on disparities by industry into its process for selecting establishments for compliance evaluations, but has not fully assessed its planned methods  Without such assessment, OFCCP may use a process that does not effectively identify the industries at greatest risk of potential noncompliance with nondiscrimination and affirmative action requirements  In addition, key aspects of OFCCP’s approach to compliance reviews of contractors’ affirmative action efforts have not changed in over 50 years, whereas the structure and locations of these companies’ work have changed  Finally, although OFCCP has developed an alternative affirmative action program for multi-establishment contractors, few contractors participate in this program  Because OFCCP has not evaluated the program, it does not have information to determine why there has not been greater uptake and whether it provides a more effective alternative to an establishment-based AAP  We are making a total of six recommendations, including one to EEOC and five to OFCCP  Specifically: The Chair of the EEOC should develop a timeline to complete the planned effort to clean IMS data for a one-year period and add missing industry code data  (Recommendation 1) The Director of OFCCP should analyze internal process data from closed evaluations to better understand the cause of delays that occur during compliance evaluations and make changes accordingly  (Recommendation 2) The Director of OFCCP should take steps toward requiring contractors to disaggregate demographic data for the purpose of setting placement goals in the AAP rather than setting a single goal for all minorities, incorporating any appropriate accommodation for company size  For example, OFCCP could provide guidance to contractors to include more specific goals in their AAP or assess the feasibility of amending their regulations to require them to do so  (Recommendation 3) The Director of OFCCP should assess the quality of the methods used by OFCCP to incorporate consideration of disparities by industry into its process for selecting contractor establishments for compliance evaluation  It should use the results of this assessment in finalizing its procedures for identifying contractor establishments at greatest risk of noncompliance  (Recommendation 4) The Director of OFCCP should evaluate the current approach used for identifying entities for compliance review and determine whether modifications are needed to reflect current workplace structures and locations or to ensure that subcontractors are included  (Recommendation 5) The Director of OFCCP should evaluate the Functional Affirmative Action Program to assess its usefulness as an effective alternative to an establishment-based program, and determine what improvements, if any, could be made to better encourage contractor participation  (Recommendation 6) We provided a draft of this report to the Departments of Labor (DOL), Commerce, the Equal Employment Opportunity Commission (EEOC) and the National Science Foundation (NSF)  We received written comments from DOL that are reproduced in appendix V  In addition, DOL, Commerce, EEOC, and NSF provided technical comments which we incorporated into the report as appropriate  DOL agreed with 4 of the 5 recommendations we made to improve oversight of federal contractors, and identified some steps it plans to take to implement them  Specifically, the department agreed with our recommendations to analyze internal process data to better understand the cause of delays that occur during compliance evaluations, assess the quality of methods used to incorporate consideration of disparities by industry into the process to select contractors for review, and to evaluate its current approach to identifying entities for review in light of changes in workplace structures, as well as its Functional Affirmative Action Program  DOL stated that it appreciated, but neither agreed nor disagreed, with our recommendation to take steps toward requiring contractors to disaggregate demographic data for the purpose of setting placement goals in the AAP rather than setting a single goal for all minorities  The department said this would require a regulatory change with little immediate benefit as contractors are already required to collect demographic data on each employee and applicant, and must conduct in- depth analyses of their total employment processes to identify where impediments to equal opportunity exist  While we acknowledge these data collection requirements for federal contractors, we remain concerned that without requiring contractors to also establish placement goals to address any underrepresentation for specific minority groups, contractors may not develop objectives or targets to make affirmative action efforts work  We maintain, therefore, that DOL should take steps toward requiring contractors to develop placement goals disaggregated by race/ethnicity  EEOC provided us a memo that it characterized as technical comments on the draft report  In these comments, EEOC neither agreed nor disagreed with our recommendation to develop a timeline to complete its planned effort to clean IMS data for a one-year period, which would include adding missing industry codes, but stated that it was taking some actions to enhance these data  We continue to maintain a timeline should be developed to complete this review, which is needed for the commission to conduct industry sector analysis that could be used to more effectively focus its limited resources and outreach activities  EEOC also emphasized the importance of systemic investigations, noting that while outreach may be somewhat useful in generating charges, individual charges are unlikely to make a substantial impact on a systemic practice affecting an entire employment sector  We maintain that the ability to analyze IMS data by industry could help EEOC to focus its resource use, including for systemic investigations  EEOC also noted staffing and resource constraints as issues faced by the commission  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretary of Labor, the Chair of the Equal Employment Opportunity Commission, the Secretary of Commerce, and the Director of the National Science Foundation  In addition, the report will be available at no charge on GAO’s website at http://www gao gov  If you or your staff should have any questions about this report, please contact me at (202) 512-7215 or brownbarnesc@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix VI  Our two objectives were to: (1) identify the demographic trends in the technology workforce over the past 10 years, and (2) assess the efforts by the U S  Equal Employment Opportunity Commission (EEOC) and the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) to oversee technology companies and technology contractors’ compliance with equal employment opportunity and affirmative action requirements  This appendix provides details of the data sources used to answer these questions, the analyses we conducted, and any limitations we encountered  There is no commonly accepted definition of the technology sector or technology-oriented occupations  To arrive at our definition for the technology sector, we identified industries with the highest concentration of technology-oriented occupations, a similar approach to what other federal agencies have used recently to analyze trends within this sector  To identify technology-oriented occupations, we reviewed relevant research and interviewed researchers and other individuals knowledgeable about the technology sector  Based on this research, we defined technology-oriented occupations to include all computer, engineering and mathematical occupations, including managers  We selected our occupations using Bureau of Labor Statistics (BLS) Standard Occupational Classification (SOC) System codes, and crosswalked those occupations to the corresponding U S  Census Bureau occupation codes to conduct our analysis  (For a complete list of the occupations we included as technology occupations, see appendix II)  We defined the technology sector as a group of industries with the highest concentration of technology workers  Using data from the American Community Survey, an ongoing national survey conducted by the U S  Census Bureau that collects information from a sample of households, we identified the 15 industries with the highest concentration of technology workers  For this analysis, we used Census industry codes since we used this dataset for many of our analyses  The concentration of technology workers in these industries ranged from a high of 62 2 percent in the computer systems design and related services industry to a low of 19 33 percent in the wired telecommunications carriers industry (see table 3)  Companies in the technology sector also employ non-technical workers, such as sales people  We cross-walked the industries we identified in the American Community Survey with corresponding industry codes from the North American Industry Classification System (NAICS), which is the standard used by federal statistical agencies in classifying business establishments  The other data sets used in this review use NAICS codes to identify industry  The NAICS system has six levels of industry classification, with the smallest level (2-digit code) providing the most general industry classification, and the largest (6-digit) providing the most specific classification  In total, we identified 55 6-digit NAICS industry codes that comprise the technology sector using this method  (See appendix III for a list of the 6-digit NAICS codes and industry names that correspond to the Census industries we identified ) We compared our list of industries to those included in the 2016 reports by EEOC and the BLS on the technology sector  While each report includes a somewhat different set of industries depending on the authors’ particular definition of technology occupations, most of the 15 industries we selected overlap with industries selected in these other reviews  Stemming from their particular focus, these reports included some additional industries and/or occupations excluded from our analysis, such as those in the life sciences  We also compared our findings on the demographic trends in the technology workforce to 2016 EEOC and Census Bureau reports that reviewed diversity in the technology sector  Despite the definitional and methodological variations, the demographic trends found in these other reports were generally comparable to our findings  To determine the demographic trends in the technology workforce over the past decade, we analyzed quantitative data on technology workers within and outside the technology sector from 2005 through 2015 from the Census Bureau’s Public Use Microdata Sample of the American Community Survey (ACS) for the years 2005, 2007, 2009, 2011, 2013, and 2015  ACS is an ongoing national survey that collects information from a sample of households  We analyzed trend data for gender, race, and ethnicity, and median salary by occupation and sector, and analyzed point-in-time data on educational background by occupation  We analyzed the percentage of technology workers who earned bachelor’s degrees in computer, engineering, mathematics, and technology fields  For median salary, we analyzed data for workers who were employed full-time, which included those who, over the past 12 months, reported usually working 35 hours or more per week and 50 weeks or more per year, and those with wages greater than zero  To account for the sample representation and design used in the ACS, we used the person weight present in the ACS data  We used the successive difference replication method to estimate the standard errors around any population estimate  For each comparison, we tested the statistical significance of the difference for men and women and for specific racial and ethnic groups at the p-value <0 05 level  In addition, we tested the statistical significance of the change between 2005 and 2015 for each gender and racial/ethnic group  For race categories using ACS data in this report, we included only non- Hispanic members of White, Black, Asian, and Other categories  For the Asian category, we included Asian American, Native Hawaiian or Other Pacific Islander  The Hispanic category incorporated Hispanics of all races  Our analysis included American Indian or Alaskan Native, and Two or More Races, in the category reported as “Other ” We assessed the reliability of the ACS generally and of data elements that were critical to our analyses and determined that they were sufficiently reliable for our analyses  Specifically, we reviewed documentation on the general design and methods of the ACS and on the specific elements of the ACS data that were used in our analysis  We interviewed Census Bureau officials knowledgeable about the ACS data and completed our own electronic data testing to assess the accuracy and completeness of the data used in our analyses  To determine workforce trends in companies within the technology sector and at leading information technology companies, we analyzed data from EEOC’s Employer Information Reports (EEO-1) for the years 2007, 2011, and 2015  We report EEO-1 data starting in 2007 because EEOC made significant changes to its requirements related to the reporting of EEO-1 data over time  For example, beginning in 2007, EEOC changed its requirements related to the reporting of data on managers and changed its practices for collecting certain racial/ethnicity information  EEO-1 reports contain firm-level data that is annually submitted to EEOC, generally by private-sector firms with at least 100 employees or federal contractors with at least 50 employees that have a contract, subcontract or purchase order amounting to $50,000 or more  Companies that fit the above criteria submit separate EEO-1 reports for their headquarters as well as each establishment facility  EEOC requires employers to use the North American Industry Classification System (NAICS) to classify their industry  To identify trends using EEO-1 data for workers, we analyzed data for companies with the NAICS codes we initially identified as technology industries  We selected the leading information technology companies using Standard & Poor’s (S&P) 500 Information Technology Index list, which identifies the largest public information technology companies at a given time  In October 2016, this list consisted of 67 companies in the world that have stocks trading with the United States, and we analyzed EEO-1 data from 65 of these companies  For both analyses, we analyzed EEO-1 data from all job categories by gender, race and ethnicity, and industry sectors  For job categories, the EEO-1 form collects data on 10 major job categories including 1) Executives, Senior Level Officials and Managers; 2) First/Mid-Level Officials and Managers; 3) Professionals; 4) Technicians; 5) Sales Workers; 6) Administrative Support Workers; 7) Craft Workers; 8) Operatives; 9) Laborers and Helpers; and 10) Service Workers  In our analysis, “all other jobs” combines sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers  We used the race/ethnicity categories used by the EEOC as follows: White, Black or African American, Asian (including Native Hawaiian or Other Pacific Islander), Hispanic or Latino, and “Two or more Races” (including American Indian or Alaska Native)  We assessed the reliability of the EEO-1 data and determined that despite limitations, they were sufficiently reliable for our analyses  To determine the reliability of the EEO-1 data that we received from EEOC, we interviewed knowledgeable EEOC officials, reviewed relevant documents provided by agency officials and obtained on its website, and performed manual data testing for missing variables  For our analysis of technology degree earners, we used degree completion data tabulated by the National Science Foundation from the National Center for Education Statistics’ Integrated Postsecondary Education Data System (IPEDS) for the year 2014  Using a variety of sources, such as academic research and interviews with representatives from academia, we defined technology-related fields as degree programs in computer science, engineering, and mathematics  We analyzed IPEDS data by race and gender and who had obtained a bachelor’s or master’s degree in technology-related fields  We determined that the potential external candidates for technology positions generally had obtained either a bachelor’s or a master’s degree in a technology-related field  We used the race/ethnicity categories used by IPEDS as follows: White, Black, Asian (including Pacific Islander), Hispanic, and Multiracial or other (which includes American Indian or Alaska Native, Other or Unknown Race, and Two or more Races, i e  respondents who selected one or more racial designations)  Race and ethnicity breakouts are for U S  citizens and permanent residents only, and thus do not include data on temporary residents  The analysis by gender includes temporary residents  To determine the reliability of IPEDs data, we reviewed relevant documents obtained on the National Center for Education Statistics website, such as annual methodology reports and the handbook of NCES survey methods  We determined that data from IPEDs were sufficiently reliable for our purposes  To identify how EEOC and OFCCP have overseen technology companies’ compliance with federal equal opportunity and affirmative action requirements, we reviewed relevant federal statutes and regulations, EEOC and OFCCP policies, strategic planning documents, and operational manuals  We interviewed EEOC and OFCCP officials in headquarters, and in two regional locations selected based on the large proportion of technology companies in those areas  At EEOC, we met with officials from the San Francisco and New York district offices  At OFCCP, we met with officials from the Pacific and Northeast regional offices  To explore charges of discrimination filed with the EEOC against technology companies, we planned to analyze data from the EEOC Integrated Mission System (IMS), which contains records on EEOC charges and enforcement activities  However, since industry code is not a mandatory field for investigators to complete, roughly half the entries did not have an industry code  Therefore, we could not reliably identify technology companies that have faced charges or enforcement  We attempted to match information we had developed on federal technology contractors with charges filed in the IMS database  Depending on the matching method we used, this yielded very different results and we determined this was not a sufficiently reliable method  Further, any matching method we used would have excluded technology companies that did not hold a federal contract  To obtain information on evaluations of technology contractors completed by OFCCP and complaints received against technology contractors, we took a two-step approach  First, using the Federal Procurement Data System–Next Generation (FPDS-NG), we developed a list of company establishments and their subsidiaries that received federal contract obligations in fiscal years 2011-2015 under any of the 55 NAICS codes we included above as technology industries  We selected only company establishments that received 50 percent or more of their total federal contract obligations under these NAICS codes  Each establishment was counted only once regardless of how many federal contracts it received during the time period  Using this method, we identified 43,448 establishments in our pool of “technology contractors ” To identify subsidiaries, which are also subject to OFCCP requirements and evaluations, we identified any other establishments that shared the global vendor code with the contractors we identified, regardless of their NAICS code  This yielded 2,116 additional contractors  Second, we matched the names (removing suffixes) of the technology contractors and their subsidiaries that we identified in FPDS-NG against OFCCP’s data on their evaluations of contractors to identify the evaluations of technology contractors that OFCCP opened and completed from fiscal year 2011 through fiscal year 2016  We conducted a similar matching exercise to identify the complaints OFCCP received against technology companies  In addition, we identified which of the leading technology companies had completed evaluations between fiscal year 2011 through 2016  We obtained information during interviews with researchers, and representatives of workforce and industry organizations and associations  In addition, we interviewed diversity and compliance representatives of eight of the leading information technology companies located in the San Francisco Bay area which were also federal contractors to discuss their efforts to increase diversity and to gain their perspectives on the federal role in overseeing compliance with nondiscrimination laws  These companies were: Cisco Systems, Inc  Facebook, Inc  Google Inc  Hewlett Packard Enterprise Company Intuit Inc  Oracle America, Inc  This is the list of technology occupations that we used in our analyses  We selected our occupations using Bureau of Labor Statistics (BLS) Standard Occupational Classification (SOC) System codes, and cross- walked those occupations to the corresponding U S  Census Bureau occupation codes  This is the list of the 55 6-digit North American Industry Classification System (NAICS) codes we identified as technology-related industries  To develop this list, we identified the 15 industries with the highest concentration of technology workers using U S  Census Bureau industry codes and then used the U S  Census Bureau’s 2012 Industry Code List for Household Surveys to crosswalk the Census codes with NAICS codes  In addition to the contact named above, Betty Ward-Zukerman (Assistant Director), Kate Blumenreich (Analyst-in-Charge), Sheranda Campbell, Julianne Hartmann Cutts, Clarita Mrena, Moon Parks, Alexandra Rouse, and John Yee made significant contributions to all phases of the work  Also contributing to this report were Rachel Beers, James Bennett, Hedieh Fusfield, Julia Kennon, Jean McSween, Jessica Orr, Dae Park, James Rebbe, Almeta Spencer, and Alexandra Squitieri 


Report 2: Election administration attracted significant attention in 2000, when issues with the vote count delayed the results of the presidential race  Administrative issues have also been reported in subsequent election cycles  For example, issues with voter registration were reported in multiple states in 2016 and 2018  Some responses to such reports focus on the rules of elections  The Help America Vote Act of 2002 (HAVA; P L  107-252 ; 116 Stat  1666), for example, requires states to establish a uniform standard of what counts as a vote for each voting system they use (52 U S C  §21081(a)(6)), and bills have been introduced in recent Congresses to change how voter registration is handled  Other responses focus on the systems that apply election rules  In the United States, that typically means state and local systems  The administration of elections in the United States is highly decentralized  Elections are primarily administered by thousands of state and local systems rather than a single, unified national system  Understanding how those state and local systems work may be relevant to Congress for at least two reasons  First, the way state and local election systems work can affect how well federal action on election administration serves its intended purposes  Most federal action on election administration is carried out by state and local election systems  Interactions between the workings of those systems and federal actions can help determine how effective the federal actions are at achieving their objectives  Second, Congress can require or encourage changes to the way state and local election systems work  Congress has a number of tools for influencing election administration policy  The use of these tools can—either intentionally or unintentionally—affect the workings of the state and local systems that administer federal elections  This report is intended to help Congress understand how state and local election systems work and how their workings might relate to federal activity on election administration  It starts by describing the distribution of election administration duties at the state and local levels and the structures of the state and local systems that conduct elections  It then uses examples from past federal action on election administration to illustrate some of the ways the duties and structures of state and local election systems interact with federal activity  It closes by introducing some considerations that may be relevant to Members interested in election administration  This report focuses on the administration of federal elections in the states by executive and legislative branches of state and local government  Much of the discussion applies to nonfederal as well as federal elections, but the report is intended explicitly to address only federal elections  The report also does not cover the federal role in administering federal elections, election administration in the U S  territories, the role of law enforcement and the courts in election administration, or issues of constitutional or legal interpretation  The typical federal election process has three main parts: voter registration, vote casting, and vote counting  This report focuses on those three parts of the process rather than on other aspects of campaigns and elections, such as campaign finance and redistricting  Finally, the way federal elections are administered varies between and within states  A full accounting of the variations is beyond the scope of this report  Instead, the report describes general patterns and illustrates them with examples  Examples appear in text boxes like the box below, which describes the role the text boxes play in the report in more detail  Election administration involves making decisions about the rules of elections, such as whether voters should be able to register online, whether they should be required to show photo identification at the polls, and whether election results should be audited  It also involves conducting elections in accordance with those decisions and paying for the activities and resources required to conduct them  These three election administration duties can be described as policymaking, implementation, and funding  This section describes some common patterns in the distribution of these duties at the state and local levels  In the U S  system, states generally play the primary decisionmaking role in election administration  State legislatures, with input from their governors, can make state laws about the administration of elections and make or initiate election administration amendments to their state constitutions  State laws and constitutions can also delegate or defer responsibility for decisions about the administration of elections to other state or local officials and to voters  The U S  Constitution also provides for a federal role with respect to decisionmaking about elections, and Congress has exercised such powers in a number of instances  For more information about federal laws governing the state and local conduct of federal elections, see the Appendix   Box 1 uses examples from voter registration to illustrate a number of these approaches to policymaking  It starts with a discussion of a registration policy enacted by the federal government and then describes an adjustment to the policy made, respectively, by a state legislature on the recommendation of a state executive branch official, by state executive branch officials, and by voters  State and local officials may be granted decisionmaking authority explicitly by a variety of constitutional provisions, laws, charters, ordinances, and regulations at multiple levels of government  They may also be left discretion over policy details that are not specified in legislative or regulatory text  For example, states may set out general guidelines for voting technology and ballot design but leave decisions about exactly which machines to buy or how to lay out ballots to local officials  Voters have a say in election administration measures that are referred to the ballot by their state legislatures  Some states also offer citizen initiatives or popular referendums, which voters can use to propose their own state election administration statutes or state constitutional amendments or to repeal or affirm election administration laws adopted by their state legislatures  Table 1 lists the citizen initiative and popular referendum options available to voters in states that offer such mechanisms, as presented by the Initiative & Referendum Institute at the University of Southern California in January 2019  Box 2 uses examples from the November 2018 election to illustrate how states and voters have used ballot measures to make election administration policy  It describes a statewide proposal to enact automatic voter registration in Nevada that was initiated by citizens, and a statewide proposal to enact a voter ID requirement in North Carolina that was referred to the ballot by the state legislature  Early U S  elections were conducted almost entirely locally  Some states have departed from that tradition  For example, in Alaska, the state conducts elections above the borough level, and, in Delaware, all elections are conducted by the state  Congress has also shifted some responsibility for conducting elections to the state level  For example, the Uniformed and Overseas Citizens Absentee Voting Act (UOCAVA; P L  99-410 ; 100 Stat  924) requires states to designate a single state office to provide absent uniformed services and overseas voters with information about voter registration and absentee voting (52 U S C  §20302(b))  The NVRA requires states to designate a chief state election official to coordinate state responsibilities under the act (52 U S C  §20509), and HAVA requires chief state election officials to implement statewide voter registration lists and oversee development of plans for use of federal election administration funding (52 U S C  §21083(a)(1)(A); 52 U S C  §21005(a))  However, the day-to-day implementation of election administration policy is still mostly handled by localities  For example, localities typically add eligible voters to the voter rolls; design and print ballots; recruit and train poll workers; select and prepare polling places; store and transport voting equipment; and count, canvass, and report election results  The level of locality primarily responsible for conducting elections is typically the county, but there are some exceptions  The New England states, which have a strong tradition of township government, tend to assign primary responsibility to municipalities  Some states also split implementation duties between counties and municipalities  Responsibility for implementing election administration policy may also be divided between offices or agencies at the same level of local government  For example, according to one scholarly source, as of 2015, localities in about one-third of states split responsibility for conducting elections between two or more offices or agencies  Table 2 lists the states identified by those scholars  Election administration involves both intermittent and ongoing costs  Intermittent costs include irregular expenses like the costs of acquiring voting equipment  Ongoing costs include expenses that are linked to and recur with each individual election, such as the costs of printing ballots, paying poll workers, and transporting voting equipment to polling places, as well as expenses that are incurred whether or not there is an election, such as the costs of training election officials, maintaining voter registration lists, and providing IT support for online voter registration systems  The federal government does not supply ongoing funding to states and localities to conduct elections  To date, Congress has authorized significant federal funding for state and local election administration in one bill: HAVA  HAVA authorized $3 65 billion for three main types of formula-based payments to states as well as additional funding for a number of smaller grant and payment programs (52 U S C  §§20901-20906; 52 U S C  §§21001-21072)  Congress appropriated most of the $3 65 billion for the three types of formula-based payments between FY2003 and FY2010 and appropriated an additional $380 million in March 2018  That means states and localities are responsible for most of the costs of conducting federal elections  Localities typically assume primary responsibility for those costs, with states contributing to varying degrees  All states have supplied or committed to supplying matching funds as required to receive federal HAVA funds (52 U S C  §21003(b)(5)(a))  All states but North Dakota, which does not have voter registration, have also contributed to establishing and maintaining the statewide voter registration lists required by HAVA (52 U S C  §21083(a))  State contributions to other costs vary  Many states used HAVA funding to help replace or update voting technology, and some have put additional money from state coffers toward those expenses  Table 3 lists state contributions to the costs of acquiring voting equipment, as reported by the U S  Government Accountability Office (GAO) in 2018  Table 4 provides information from the same report about states' contributions to the costs of maintaining and operating voting equipment  As GAO uses the terms in the survey, operation costs "include things such as poll worker labor to set up equipment, postage for mailing absentee or vote-by-mail ballots, paper and printing supplies for paper ballots or voter-verified paper trails, and electricity to operate equipment during elections " Maintenance costs "include things such as labor to conduct maintenance between elections of any equipment hardware and software as well as any required parts " Some states cover or contribute to the costs of training local election officials, and some share election-specific costs, such as printing ballots and transporting voting equipment  Box 3 uses five examples of cost-sharing arrangements for election-specific costs of federal elections to illustrate the range of approaches states have taken to such arrangements  The structures of the state and local systems that conduct federal elections vary both between and within states  Common variations include differences related to the leadership of the election system; relationship between local election officials and the state; and population size and density of the jurisdiction served by the system  This section describes these structural variations  The state and local election systems that conduct federal elections may be led by an individual, such as the state secretary of state or a town or county clerk; a group, such as a state elections commission or a county board of elections; or a combination of individuals or groups, such as a state secretary of state and state board of elections, or a city clerk and city registrar of voters  Election system leadership may be chosen by voters or appointed by an authority such as the governor or state legislature  The selection method—and the leaders themselves—may be partisan, bipartisan, or nonpartisan  Federal law requires states to designate a chief election official to carry out certain tasks  Table 5 lists the titles of chief state election officials, as reported to CRS by the EAC, and the methods of selecting them, as listed by the National Association of Secretaries of State (NASS) and the National Association of State Legislatures (NCSL)  The leadership types and selection methods of local election systems may vary within a state  Box 4 uses examples from Florida and Wisconsin to illustrate such variations  It describes the different causes of variation in the two states and a recent change in Florida to a more uniform selection process  The leadership structures of both state and local systems can also change over time  Box 5 uses the two states from Box 4 to illustrate the types of changes states might make, how they might make them, and how frequently they might make them  It describes one change that was approved by voters as a ballot measure and a number of others that were enacted legislatively  Another way in which the structures of election systems can vary is in the relationship between local election officials and the state  Some local election officials operate largely independently, whereas others rely on state officials or resources for some, most, or all basic functions  For example, as noted in " Funding ," states may provide some or all of the training for local election officials  As described in more detail in " Jurisdiction Size and Density ," local election officials who serve smaller or more rural jurisdictions may also depend on their states to provide specialized expertise, such as legal or technical know-how  States also have varying types and degrees of influence over local election officials  Choices about other structural features, such as the method used to select the leadership of local election systems, can shape this aspect of the state-local relationship  For example, in some states, state officials appoint and can remove local election officials  State officials in other states may have other options for influencing local officials  For example, state officials may have the power to initiate legal action against local officials, to provide or withhold funding for local election administration, or to certify and decertify voting systems  However, they tend to have less control over how local officials perform their election administration duties than state officials with appointment and removal authority  As described in more detail in " Compliance with Federal Requirements ," this dynamic may be especially pronounced for local officials who are popularly elected  Such officials are accountable primarily to voters rather than to the state  Other structural variations between election systems derive from differences in the population size and density of the jurisdictions they serve  Some election jurisdictions reported serving fewer than 100 eligible registered voters in the 2016 election, for example, whereas Los Angeles County reported serving 6 8 million  The eligible registered voters in that county alone reportedly outnumbered the eligible registrants in each of 40 other states  Election jurisdictions also differ in population density  For example, Los Angeles County is an urban center, and many small jurisdictions are rural  Jurisdictions with different population sizes and densities have different election administration advantages and face different administrative challenges  For example, voter registration list maintenance is typically more straightforward in small jurisdictions because their lists are shorter and election officials are more likely to know registrants personally  Meanwhile, large jurisdictions tend to have larger tax bases and more resources  Those differences between jurisdictions may be reflected in the internal structures of the election systems that serve them  One example of such a structural difference is the size and specialization of the system's staff  Larger jurisdictions, which typically have more personnel, may have much of the specialized expertise they need in-house  Smaller jurisdictions, which may have only one part-time employee dedicated to election administration, are more likely to rely on outside expertise  For example, according to law professors Steven F  Huefner, Daniel P  Tokaji, and Edward B  Foley, smaller jurisdictions in Illinois have looked to state attorneys for election law expertise and to voting equipment vendors for technical support  Another type of difference related to jurisdiction size and density is variation in the allocation of system resources  A study prepared for the U S  Election Assistance Commission in 2013 found that election officials in rural jurisdictions were more likely than their urban counterparts to use paid print advertising for voter outreach  Election officials in urban jurisdictions were more likely to use websites and social media  Small jurisdictions may also allocate a larger share of their resources to meeting state and federal requirements than larger jurisdictions because there are often fixed start-up costs to required changes, and smaller jurisdictions may be less equipped to capitalize on economies of scale  For example, political scientists Heather M  Creek and Kimberly A  Karnes report, "There is a minimum cost to the acquisition and maintenance of voting technology that applies whether the district is purchasing 5 or 500 machines " The duties and structures of state and local election systems can affect the implementation of federal election administration laws  Perhaps as a result, Congress has specified how states and localities should distribute certain election administration duties and structure certain elements of their election systems  Changes to the duties and structures of state and local election systems have sometimes also been side effects of other federal activity on election administration  This section provides examples of ways in which the distribution of election administration duties at the state and local levels and the structures of state and local election systems can affect the implementation of federal election administration law  These examples include federal efforts to affect the administration of elections through (1) requirements, (2) funding, and (3) information sharing  Congress can use requirements to regulate how states and localities administer certain aspects of federal elections  How well such requirements serve their intended purposes depends in part on how closely states and localities comply with them  How closely states and localities comply with federal requirements may, in turn, be affected by the duties and structures of the state and local election systems that implement them  For example, UOCAVA assigns responsibility for complying with some of its requirements to the states (52 U S C  §20302), but the tasks required for compliance are often handled by local officials  One scholar, law professor Justin Weinstein-Tull, indicates that this means that the officials who are held liable for compliance with UOCAVA requirements may differ from the officials who take or fail to take the actions needed to comply  Box 6 provides an illustration of this phenomenon as reported by state officials in Alabama  The federal government can provide funding for state and local election administration, which may be conditional on the adoption of certain election administration policies or practices  How well such funding serves its intended purposes may depend in part on how timely it is and how well-tailored it is to its objectives  Duties and structures of state and local election systems may affect how quickly federal funding is claimed and used and how well the uses to which it is put serve federal objectives  For example, HAVA has authorized payments to states to meet its requirements (52 U S C  §21007)  It has directed those payments to be disbursed to states (52 U S C  §21001(a)) and charged chief state election officials with overseeing decisions about how to spend them (52 U S C  §21005(a))  State election officials run federal elections in some states, but those states are the exception  As noted in " Implementation " and " Funding ," most states assign election administration implementation and funding duties to local officials  That means that the officials who receive HAVA funding and are charged with overseeing decisions about how to use it often differ from the officials who conduct and pay for the activities and resources it is intended to fund  That has had at least two reported consequences  First, in some cases, it has reportedly delayed access to or use of some HAVA funds  Directing HAVA funding to states introduces opportunities for state-level delays, such as decisions by state officials to wait to claim the funds or requirements in state law to obtain approval to do so  Second, some local officials have stated the view that their states' shares of HAVA funding were not put to what they considered the areas of greatest need  Box 7 provides examples of such consequences as described by state and local officials in Nevada, Minnesota, and Virginia  Congress can require or facilitate information sharing with states and localities by federal agencies  As with funding, the effectiveness of federal information sharing may depend in part on how timely it is  How quickly federal agencies share information with the appropriate state and local officials may be affected by the distribution of election administration duties at the state and federal levels  Box 8 provides an example of such an effect reported by NASS  Past federal action has resulted in both intentional and unintentional changes to state and local election systems  Some federal laws include provisions that are specifically designed to establish certain responsibilities for election administration at the state level  For example, the NVRA requires states to designate chief state election officials to coordinate state responsibilities under the act (52 U S C  §20509), and HAVA charges chief state election officials with implementing a statewide voter registration system (52 U S C  §21083(a)(1)(A))  Federal regulation has reportedly also had the side effect of shifting the distribution of other election administration duties  For example, the agency-based registration requirements in the NVRA divide voter registration responsibilities between traditional election offices and offices that had not historically been involved in election administration, such as motor vehicle and public assistance agencies (52 U S C  §20504; 52 U S C  §20506)  According to Hale, Montjoy, and Brown, "the need to pass implementing legislation and the complexity of legal and technical requirements" in federal laws such as HAVA and the NVRA has also "led many states to grant new or additional rule-making power" to their chief state election officials  Congress has considered legislation—some of which has been enacted and some of which has not—that would change election rules or the state and local systems that implement them  The interactions between the duties and structures of state and local election systems and past federal actions suggest some considerations that may be relevant to future congressional consideration of proposals that would affect the administration of federal elections  The following questions may be of interest to Members as they consider making changes to election administration or maintaining current rules and structures: How would any proposed change interact with the duties and structures of state and local election systems? Would the duties and structures of state and local election systems make a proposed change difficult to implement? Would the design of a proposed change need to be adjusted to accommodate variations between or within states? Which of the policy tools available to Congress is best suited to achieving the purpose of a proposed change? For example, would it be more effective to advance a proposed change with a federal requirement, or incentivize it via federal funding? How might the nature of the state and local system inform a proposed change? For example, if it is a federal requirement, who is charged with compliance; who is responsible for the tasks required for compliance; and what is the relationship between the two? If it is federal funding, to whom should it be distributed, and who should be involved in making decisions about how to use it? Would a proposed change have the effect, either intentionally or unintentionally, of altering the duties or structures of state or local election systems? If so, what are the advantages and disadvantages of such changes? Are there complications with a proposed change that are not specifically related to election administration? For example, could there be federalism-related issues with intervening in the relationships between states and their political subdivisions? 

ground_truth: The administration of elections in the United States is highly decentralized. Elections are primarily administered by thousands of state and local systems rather than a single, unified national system. States and localities share responsibility for most election administration duties. Exactly how responsibilities are assigned at the state and local levels varies both between and within states, but there are some general patterns in the distribution of duties. States typically have primary responsibility for making decisions about the rules of elections (policymaking). Localities typically have primary responsibility for conducting elections in accordance with those rules (implementation). Localities, with varying contributions from states, typically also have primary responsibility for paying for the activities and resources required to conduct elections (funding). The structures of the state and local systems that conduct elections also vary between and within states. Common variations include differences related to the leadership of the system, the relationship between local election officials and the state, and the population size and density of the jurisdiction the system serves. The leadership of a state or local election system may be elected or appointed, and both the leaders and the methods used to select them may be partisan, bipartisan, or nonpartisan. State officials may have more or less direct influence over local election officials, and the extent of their influence may be affected by other structural features of the state's election systems, such as the methods used to select local officials. Finally, larger election jurisdictions have different administrative advantages and challenges than smaller ones, and more urban jurisdictions have different advantages and challenges than more rural ones. These differences between jurisdictions may be reflected in structural features of the election systems that serve them, such as how the systems allocate resources and where they find specialized expertise. Understanding the duties and structures of state and local election systems may be relevant to Congress for at least two reasons. First, the way state and local election systems work can affect how well federal action on election administration serves its intended purposes. The effectiveness of federal action depends in part on how it is implemented. How it is implemented can depend, in turn, on how the state and local election systems that implement it work. Second, Congress can make or incentivize changes to the way state and local election systems work. Congress has a number of policy tools it can use to affect the administration of federal elections. The use of these tools can—either intentionally or unintentionally—affect the state and local election systems that administer federal elections.