United States General Accounting Office

GAO Testimony

Before the Committee on Banking and Financial Services

House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EDT

on Tuesday

July 29, 1997

THE RESULTS ACT

Observations on Draft

Strategic Plans of Five

Financial Regulatory

Agencies

Statement of Thomas J. McCool

Associate Director, Financial Institutions and Markets

Issues

General Government Division

GAO/T-GGD-97-164

Summary 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

Under the Government Performance and Results Act (GPRA or Results

Act), executive agencies are to develop strategic plans in which they

define their missions, establish results-oriented goals, and identify

strategies they will use to achieve those goals for the period 1997 through

2002. The House Committee on Banking and Financial Services asked GAO

to provide its perspective on the draft plans of the Board of Governors of

the Federal Reserve System, Federal Deposit Insurance Corporation,

Office of the Comptroller of the Currency, Office of Thrift Supervision, and

the National Credit Union Administration.

On the basis of its review of the draft plans, GAO found that each plan

contained most of the components required by the Results Act. Three of

the draft plans had all six components, and two draft plans had five of the

components.

GAO’s analysis of individual plan components showed that the plans had

mission statements that broadly defined the purpose of the agency and

goals and objectives that were somewhat results-oriented. Some agencies

had useful discussions of approaches and strategies to achieve the goals

and objectives, while others could have benefitted from more discussion

of the resources needed. Each agency discussed key external factors but

only one discussed how those factors would affect the achievement of its

goals. None of the draft plans discussed how the external factors would be

addressed.

In general, two sections were most in need of improvement. Each agency

could strengthen its section on the relationship between strategic and

annual goals by explicitly discussing the link between the two types of

goals. Also, each agency could improve its section on how program

evaluations were used and a schedule for future evaluations. Because of

the complex set of factors that determine regulatory outcomes, measuring

the impact of a regulatory agency’s programs will be a difficult challenge

going forward. However, the use of program evaluations both to derive

results-oriented goals and to measure the extent those goals are achieved

is an important part of the process.

Page 1 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

Mr. Chairman and Members of the Committee:

I am pleased to be here today to assist the Committee in its review of the

draft strategic plans of the five federal regulators of depository

institutions. These consultations are a step in implementing the

Government Performance and Results Act of 1993 (GPRA or Results Act)

whose purpose is to reduce the cost and improve the performance of the

federal government.

Mr. Chairman, you asked that we provide analyses and observations about

the agencies’ draft strategic plans, including the strengths and weaknesses

of each plan, the extent to which the agencies are experiencing particular

challenges that face regulatory agencies in their attempts to measure

performance, and any suggestions we might have for improvements in

these draft plans before they are finalized and submitted to Congress in

September.

As its title indicates, the Results Act’s focus is on results. In crafting the

Act, Congress recognized that congressional and executive branch

decisionmaking had been severely handicapped in many agencies by the

absence of the basic underpinnings of well-managed organizations. These

agencies lacked clear missions; results-oriented performance goals;

well-conceived agency strategies to meet those goals; and accurate,

reliable, and timely program performance and cost information to measure

progress in achieving program results. In recent years, Congress has

established a statutory framework for addressing these long-standing

challenges and for helping Congress and the executive branch make the

difficult trade-offs that are necessary for effective policymaking.1

Improving management in the federal sector will not be easy, but the

Results Act can assist in accomplishing this task.

The Results Act seeks to shift the focus of federal management and

decisionmaking from a preoccupation with the number of tasks completed

or services provided to a more direct consideration of the results of

programs—that is, the real differences those tasks or services make in

citizen’s lives. As a starting point, the Results Act requires executive

agencies to complete—no later than September 30 of this year—strategic

plans in which they define their missions, establish results-oriented goals,

and identify the strategies they will use to achieve those goals for the

1

This framework includes as its essential elements the Chief Financial Officers Act (CFO); information

technology reform legislation, including the Paperwork Reduction Act of 1995 and the Clinger-Cohen

Act; and the Results Act. The CFO Act was expanded and amended by the Government Management

Reform Act.

Page 2 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

period of 1997 through 2002. The Results Act requires agencies to consult

with Congress and solicit the input of others as they develop these

strategic plans.

Beginning with fiscal year 1999, executive agencies are then to use their

strategic plans to prepare annual performance plans. These performance

plans are to include annual goals linked to the activities displayed in

budget presentations as well as to the indicators the agency will use to

measure performance against the results-oriented goals. Agencies are

subsequently to report each year on the extent to which these goals were

met, provide an explanation if these goals were not met, and present the

actions needed to meet any unmet goals.

Congress can use the Results Act to provide the vital information that it

needs to better make decisions. The congressional consultations on

agencies’ strategic plans provide an important opportunity for Congress

and the executive branch to work together to ensure that agencies’

missions are focused, goals are results-oriented and clearly established,

and strategies and funding expectations are appropriate and reasonable.

One of the reasons we are here today is to provide our perspective on

these plans. We note that, although these strategic plans are not due until

September, each agency we reviewed had prepared a draft plan. Overall,

we found that each agency had made an effort to adhere to the Results

Act, and we recognize that agency officials are still in the process of

updating and revising the draft plans.

In response to your request, we reviewed the draft plans submitted by the

Board of Governors of the Federal Reserve System (Board), the Federal

Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the

Currency (OCC), the Office of Thrift Supervision (OTS), and the National

Credit Union Association (NCUA). For each agency, we specifically

determined whether the draft plan contained each of the six components

required by the Results Act and assessed the components’ strengths and

weaknesses.2

 We also determined whether key statutory authorities were

reflected in the agencies’ draft plans and identified whether the plans

2

The Results Act specifies that agencies’ strategic plans should have the following critical components:

(1) a comprehensive agency mission statement; (2) agencywide long-term goals and objectives for all

major functions and operations; (3) approaches (or strategies) to achieve the goals and objectives and

the various resources needed; (4) the relationship between the long-term goals/objectives and the

annual performance plans required by the Act; (5) an identification of key factors, external to the

agency and beyond its control, that could significantly affect the achievement of the strategic goals;

and (6) a description of how program evaluations were used to establish and revise strategic goals and

a schedule for future program evaluations.

Page 3 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

addressed major management challenges and included indications of

interagency coordination.

On the basis of our review of the draft plans, we found that each plan

contained most of the components required by the Results Act. Three of

the draft plans had all six components, and two draft plans had five of the

components. In general, the draft plans reflected the statutory authorities

and responsibilities of the federal regulators with respect to the

institutions and matters within their jurisdictions. On the whole, the draft

plans showed little evidence of interagency coordination.

Our analysis of individual plan components showed that the draft plans

had mission statements that broadly defined the purpose of the agency

and goals and objectives that were somewhat results-oriented and

appropriate to the agency’s mission. The content of other components

varied across agencies. For example, some agencies had useful

discussions of approaches and strategies to achieve the goals and

objectives, while others could have benefitted from more discussion of the

resources needed. Each agency discussed key external factors but only

one discussed how those factors would affect the achievement of its goals.

None of the plans discussed how the external factors would be addressed.

In general, two sections were most in need of improvement. Each agency

could strengthen its section on the relationship between strategic and

annual goals by explicitly discussing the link between these two types of

goals. Also, each agency could improve its section on how program

evaluations were used and a schedule for future evaluations. Due to the

complex set of factors that determine regulatory outcomes, measuring the

impact of a regulatory agency’s programs will be a difficult challenge going

forward. However, the use of program evaluations both to derive

results-oriented goals and to measure the extent those goals are achieved

is a key part of the process.

Our overall assessment of each agency’s draft plan was generally based on

our knowledge of that agency’s operations and programs, our past and

ongoing reviews of that agency, and other existing information available at

the time of our assessment. Specifically, the criteria we used to determine

whether each draft plan complied with the requirements of the Results Act

were the Results Act itself and the Office of Management and Budget’s

(OMB) guidance on developing the plans (OMB Circular A-11, Part 2). To

make judgments about the overall quality of the draft plans and their

Page 4 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

components, we used our May 1997 guidance3 for congressional review of

the plans as a tool. To determine whether the draft plan contained

information on interagency coordination and addressed management

problems we had previously identified, we relied on our general

knowledge of each agency’s operations and programs and the results of

our previous work.

The requirements of the Results Act and OMB guidance indicate that the

following factors should be addressed within the six components of

strategic plans:

(1) The comprehensive mission statement should

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

• focus on core programs and activities.

(2) The description of general goals and objectives should

• contain general goals and objectives for the major functions and

operations of the agency,

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

• contain a number of outcome-type goals, and

• be stated in a manner that allows a future assessment to be made on

whether the goals are being achieved.

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

achieved is to

• include discussion of operational processes, staff skills, and technologies

as well as the human, capital, information, and other resources that are

needed to achieve the goals and objectives and

• outline how the agency will communicate strategic goals throughout the

organization and hold managers and staff accountable for achieving these

goals.

(4) A strategic plan is to describe how the performance goals included in

the agency’s annual performance plans are related to the goals and

objectives in its strategic plan.

3

Agencies’ Strategic Plans Under GPRA: Key Questions to Facilitate Congressional Review

(GAO/GGD-10.1.16, May 1997).

Page 5 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

(5) A strategic plan is to identify and discuss key factors external to the

agency and beyond its control, which could occur during the time periods

covered by the plan and significantly affect the agency’s achievement of its

strategic goals. The plan is to

• briefly describe each key external factor,

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

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

(6) Program evaluations—objective and formal assessments of the results,

impact, or effects of a program or policy—are to include assessments of

the implementation and results of programs, operating policies, and

practices. The plan’s program evaluation section should briefly describe

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

• evaluation methodologies, scopes, and issues addressed; and

• a schedule for future evaluations.

Draft Strategic Plans

Generally Contained

Most Major

Components

As shown in figure 1, each of the agencies’ draft plans that we reviewed

contained most of the six required components of the Results Act. Our

assessment of whether the plans’ components met the requirements of the

Act follows the figure.

Page 6 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

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

Components required

by the Results Act Board of Governors of the

Federal Reserve System

Federal Deposit Insurance

Corporation

Office of the Comptroller

of the Currency

Office of Thrift

Supervision

National Credit Union

Administration

Mission

statement

Goals and 

objectives

Approaches or strategies

to achieve goals and objectives

Relationship between

strategic goals and 

annual performance goals

Key external factors

beyond the agencies control

How program evaluations

were used to establish or

revise strategic goals

Present Not Present

Source: GAO analysis.

The Board’s Draft Strategic

Plan

The Board developed a plan that had section titles addressing all of the

components required by the Act. The Board did not designate a time frame

for its draft plan.

• The mission statement was brief and focused on core programs and

activities. The mission statement covered the Board’s responsibilities for

Page 7 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

conducting monetary policy, maintaining the stability of financial markets,

providing services to financial institutions and government agencies, and

supervising and regulating banks and bank holding companies.

• The draft plan’s section of goals and objectives had few outcome-oriented

goals and objectives, which described the intended result, effect, or

consequence that will occur from carrying out a program or activity. Some

goals and objectives were stated in a manner that will not facilitate future

assessment.

• The draft plan had a limited description of how the goals and objectives

are to be achieved. The section referred to another Board document that

detailed various organizational units and their staffing, budget, and

objectives. The section also noted that specific organizational divisions are

oriented toward meeting specific goals and objectives. In spite of this

detail, the draft plan and associated documents were unclear on how the

plan’s goals and objectives were to be achieved and also unclear on what

specific processes, technologies, and resources were to be used. In

addition, the draft plan did not outline the process for communicating the

goals and objectives through the agency and for assigning accountability

to managers and staff for achievement of the goals and objectives.

• The draft plan had little discussion of the relationship between the

strategic goals and annual performance goals. Instead of describing the

type, nature, and scope of performance goals, the draft plan focused on

information generated by its budget process. Board budget documents

tended not to include performance goals that target a measurable level of

performance against which actual achievement can be compared.

• The draft plan outlined several key external factors and challenges,

including blurred lines between banks and nonbanks, globalization and

financial markets, and competition for the provision of payment services.

The draft plan also highlighted internal challenges, including the need for a

larger proportion of “knowledge” workers, technological changes, and a

decentralized organizational structure. However, the draft plan did not

describe how external factors were linked with particular goals or how

achievement of a goal could be affected by external factors.

• The draft plan did not clearly describe how program evaluations were

used and a schedule for future evaluations. This section referenced Board

documents developed for various planning, budgeting, and reporting

purposes—including monetary policy reports to Congress, Inspector

General reports, annual evaluations of bank plans and programs, and an

annual performance report covering Board expenses and staffing.

Although the annual performance report described program

accomplishments, the report was not outcome-oriented. We did not review

other documents referred to in the draft plan; therefore, we are unable to

Page 8 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

comment on whether the documents had outcome-oriented measures and

performance goals or whether they could measure achievement of

intended objectives. The draft plan did not include a schedule for future

program evaluations, outlines of methodologies used, descriptions of

evaluation scope, or details about particular issues to be addressed.

FDIC’s Draft Strategic Plan The FDIC’s draft plan had sections addressing each component required by

the Act. The time frame covered by FDIC’s draft was from 1997 to 2002.

• The draft mission statement briefly defined the basic purpose of FDIC,

which is to maintain stability and public confidence in the nation’s banking

system.

• The goals and objectives set forth in the draft plan were supportive of

FDIC’s mission and were results-oriented. For instance, one of the goals of

FDIC’s draft plan was to identify and address risk to the deposit fund by

(1) reporting current and emerging risks to the deposit fund and

(2) ensuring that the risk-based premium system appropriately reflects

risks to insurance funds.

• FDIC’s presentation of approaches and strategies to achieve the goals and

objectives described the objectives as well as the strategies and major

initiatives that it planned to use to meet each of its goals. However,

although FDIC generally described the processes to implement its strategies

and major initiatives, it provided little discussion of the resources needed.

For instance, under the strategies and major initiatives for the goal to

“minimize costs to the insurance funds from failing financial institutions,”

FDIC discussed its major effort of focusing on “maintaining a highly trained,

mobile staff” but did not state what resources would be needed. FDIC’s

draft plan had a section on resource strategies, but the section was not

specifically linked to the goals.

• The component relationship between strategic goals and annual

performance goals in FDIC’s draft plan did not discuss the relevance and

use of the performance measures in helping to determine the achievement

of the goals and objectives. For instance, under each goal and objective,

FDIC simply listed the annual performance measures that related to the

goals and objectives and did not discuss how the listed performance

measures would demonstrate the progress made in achieving the goals and

objectives.

• FDIC’s draft plan discussed some key external factors that could affect the

achievement of its goals and objectives. These key external factors

included the effect of the following: (1) domestic and international

economic performance and (2) certain legislative initiatives—that is, the

Page 9 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

merger of the Bank Insurance Fund and the Savings Association Insurance

Fund and the resolution of differences in statutory and regulatory rules

governing banking and thrift industries. Also, FDIC’s draft plan reviewed

several internal factors, including those related to financial accountability,

organizational, and human resource issues. However, the link between key

internal and external factors and particular goals and objectives was not

described, and it was unclear whether and how key factors would

influence goal achievement.

• FDIC’s draft plan did not describe how program evaluations were used and

a schedule for future evaluations. FDIC cited a quarterly performance

reporting process, GAO and Inspector General reports, cost-benefit

analyses, surveys of stakeholders, and other processes. However, the

extent to which these reports and processes had been or would be used to

develop or revise goals and objectives is unclear. Also, although the plan

made reference to quarterly and ongoing program evaluation, the draft

plan did not include a schedule for future program evaluations.

OCC’s Draft Strategic Plan OCC’s draft plan discussed all six components required by the Results Act.

The time frame covered by OCC’s draft plan was from 1997 to 2002.

• The draft plan’s mission statement broadly defined the basic purpose of

the agency, which is to charter, regulate, and supervise national banks.

• The goals and objectives were results-oriented and seemed appropriate to

meet the agency’s mission. For instance, one of OCC’s goals was to improve

the efficiency of bank supervision and reduce the burden on banks by

streamlining supervisory procedures and regulations.

• The approaches and strategies to achieve the goals and objectives, while

not under the section labeled “description of how general goals and

objectives are to be achieved,” were discussed to some extent in the draft

plan under the seven objectives that OCC designed to meet its four goals.

The objectives generally described the processes needed to meet goals.

However, most of the objectives did not include a description of the

resources OCC will need to meet the objectives and goals.

• The draft plan outlined performance goals to be included in the annual

performance plan as an effort to address the component relationship

between strategic goals and annual performance goals. For instance, the

draft plan listed some output-related performance measures. However, the

plan did not relate these measures to the goals. In addition, the plan lacked

specific performance measures for some of the goals, such as promoting

competition and ensuring fair access to financial services.

Page 10 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

• The draft plan identified some key external factors that could affect the

achievement of the goals and objectives, and also provided a link as to

how these factors might affect the achievement of the goals and

objectives. These factors included the following: industry consolidation,

electronic money and banking activities, and competitive environment

changes.

• The draft plan included a section on program evaluation, but the plan

neither discussed how evaluations were used nor included a schedule for

future evaluations that outlined the general methodology used, a

timetable, or the scope of evaluations.

OTS’ Draft Strategic Plan In its draft plan, OTS discussed five of the six components required by the

Results Act. The time frame covered by OTS’ draft plan was from 1997 to

2002.

• The draft mission statement stated that OTS was to effectively and

efficiently supervise thrift institutions; to maintain the safety, soundness,

and viability of the industry; and to support industry efforts to meet

housing and other community credit and financial services needs.

• The draft goals and objectives appeared to lay out a general strategy to

meet the agency’s overall mission. However, the draft plan did not always

state the goals and objectives in a way to allow for a future assessment of

whether the goals would be achieved. For instance, OTS stated that one

way to meet its goal to “improve credit availability by encouraging safe

and sound lending in those areas of greatest need,” was to “measure the

degree to which the defined tasks of the OTS Community Affairs Program

are met in any given year.”4

 Yet, the draft plan neither clearly stated what

tasks were to be performed nor linked how the accomplished tasks could

ensure that the overall credit availability could be improved in the areas of

greatest need.

• Although the draft plan identified general approaches and strategies to

achieve the goals and objectives, it did not describe the resources required

to achieve each goal and objective. Also, the draft plan did not establish

time frames to accomplish each goal and objective.

• The relationship between strategic goals and annual performance goals

was not specifically discussed in the draft plan. However, the relationship

between strategic goals and annual performance goals was described in a

separate performance plan. For instance, to achieve the goal to “maintain

and enhance a risk-focused . . . approach to supervising thrift institutions,”

4

The Community Affairs Program was established to emphasize community reinvestment,

nondiscrimination in lending, and other consumer-oriented goals for thrift institutions.

Page 11 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

the performance plan suggested ways in which OTS could improve the

value and consistency of examinations. The performance plan also

identified measures to accomplish these tasks.

• The draft plan discussed three key external factors that could affect OTS’

accomplishment of its goals: (1) the performance of the U.S. economy,

(2) the status of legislation to modernize the financial services industry,

and (3) major interindustry consolidations. However, OTS did not link each

factor to a particular goal or discuss how each factor might affect OTS’

success in meeting its goals and objectives.

• The draft plan discussed how program evaluations were used in preparing

the strategic plan. Program evaluations were used to establish goals and

objectives, but there was no schedule for future evaluations.

NCUA’s Draft Strategic

Plan

NCUA’s draft plan contained sections on all but one of the six components.

The time frame covered by NCUA’s draft plan was from 1997 to 2002.

• The mission statement of the draft plan was concise and defined the core

responsibilities of the agency, which included maintaining the safety and

soundness of the nation’s credit unions.

• The goals and objectives section of the draft plan set forth six strategic

goals and objectives that appeared to be generally supportive of the

agency’s mission statement and were stated in a results-oriented manner.

For example, one of the goals was to “protect member savings in federally

insured credit unions, thus preserving federal taxpayer funds.”

• The draft plan provides a detailed description of the agency’s approaches

and strategies to achieve the goals and objectives as well as a discussion

of the resources needed to accomplish the goals and objectives. For

instance, NCUA planned to use the Community Development Revolving

Loan Program5

 to achieve its goal to “promote the availability of financial

services to people of small means.”

• The draft plan did not have a specific section on the relationship between

strategies and annual performance goals. However, the program

evaluation section identifies specific performance measures and lists them

under the goals and the objectives in the strategic plan. There is no

discussion of the relationship between the measures and the goals.

• The draft plan identified several key external factors that could affect the

achievement of NCUA’s mission. The four factors cited were future

economic downturns, the effects that rapid technological advancement

could have on the credit union industry, a legal challenge before the

5

The Community Development Revolving Loan Program consists of congressional appropriated funds

that are to be made available to qualifying credit unions serving predominately low-income members

and those financially underserved.

Page 12 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

United States Supreme Court facing NCUA, and the possibility that credit

unions may lose their congressionally mandated tax-exempt status. The

draft plan stated that a dramatic downturn in the economy could have a

negative impact on components of its annual performance plan, although

it did not explain how key external factors could specifically affect NCUA’s

achievement of its goals and objectives. Finally, the draft plan indicated

that a loss in its court challenge or a loss of its tax-exempt status could

have a negative impact on the safety and soundness of the nation’s credit

unions.

• Although the draft plan had a section entitled “Program Evaluations,” it

neither discussed how program evaluations were used to develop the

strategic plan nor did it contain a schedule for future program evaluations.

Instead, the section contained information on the performance measures

linked to the strategic goals and objectives.

Statutory Authorities

and Responsibilities

Generally Were

Reflected in the

Federal Regulators’

Strategic Plans

Generally speaking, each draft plan reflected the statutory authorities and

responsibilities of the federal regulator with respect to institutions and

matters within its jurisdiction. This reflected the comprehensive nature of

federal regulation of insured depository institutions and the nation’s

financial system. The federal regulatory agencies are charged with

chartering or otherwise certifying the fitness of an institution to conduct

business and (1) examining, (2) supervising, and (3) otherwise regulating

institutions with respect to a broad range of complicated matters that

include safety and soundness, consumer protection, and credit access. In

addition, the Board is responsible for monetary policy and the nation’s

payments system.

Draft Agency Plans

Rarely Discussed

Interagency

Coordination Efforts

There is a potential for various coordination problems among the Board,

FDIC, OCC, OTS, and NCUA, yet only one of the draft plans indicated that

coordination issues had been considered. All of these agencies have

similar oversight responsibilities for developing and implementing

regulations, conducting examinations and off-site monitoring, and taking

enforcement actions for those institutions that are under their respective

purview. We previously have reported that regulators, banking officials,

and analysts believe that the multiplicity of regulators has resulted in

inconsistent treatment of banking and thrift institutions in examinations,

enforcement actions, and regulatory decisions.6

6

Bank Oversight Structure: U.S. and Foreign Experience May Offer Lessons for Modernizing U.S.

Structure (GAO/GGD-97-23, Nov. 1996).

Page 13 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

In our November 1996 report, we also noted that Congress and regulatory

agencies have taken some actions to improve interagency coordination.

For instance, Congress created the Federal Financial Institutions

Examination Council (FFIEC) in 1979—comprised of the Board, FDIC, OCC,

OTS, and NCUA—to promote consistency among these agencies, primarily in

the area of financial examinations. In addition, since June 1993, the Board,

FDIC, OCC, and OTS have operated under a joint policy statement that was

designed to improve coordination and minimize duplication in

examination.

However, the regulatory agencies’ draft plans that we reviewed did not

discuss how they planned to coordinate with each other in the future and

only one mentioned the need for future coordination. Moreover, the draft

plans did not refer to the possibility of future coordination activities

involving FFIEC.

External Factors Will

Present Issues for

Regulators

Although mentioned in the draft plans of some of the affected regulators,

there are a number of common external factors that will present issues to

these agencies. Because these issues are significant and likely to affect

each of the agencies to some extent, their strategic plans could be more

useful to the agencies, Congress, and other stakeholders if these

challenges were more fully discussed in the plans. The issues include

electronic innovation, new approaches to supervisory oversight, pending

legislation on financial modernization, and consolidation in the financial

services industry.

For example, electronic innovation, both in the way transactions are

conducted and in the way information is transmitted, represents a

regulatory challenge for all five regulators. The regulators have generally

adopted a wait-and-see approach to this policy because they do not want

to interfere with the pace or determine the direction of change. However,

deciding if and when this policy should be altered and how regulation

might be applied to electronic “banking” represents a major challenge.

The Board, FDIC, OCC, and OTS have all announced the intention of shifting

their supervisory focus toward early detection of unsafe and unsound

practices, rather than simply reacting to what the institutions do. OCC and

the Board have announced new examination procedures to better monitor

and control bank risk-taking by evaluating an institution’s risk exposure

and the quality of its risk management systems. In addition, FFIEC has

revised the rating system used for examining financial institutions by

Page 14 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

adding an additional risk factor and increasing the emphasis on the quality

of risk management.

Another issue facing all three bank regulators and OTS is the potential

impact of legislation currently being considered to modernize the financial

services industry. Provisions currently being considered by Congress

could have far-ranging impact on each of the regulators. For example, the

elimination of the federal thrift charter and merger of OTS with OCC could

affect all three bank regulators and OTS in terms of (1) workload, if thrifts

are allowed to choose between a federal or state charter, and

(2) supervisory focus, if the balance sheet structure of thrifts remains

different from that of banks.

Ongoing financial consolidation, in part related to interstate banking and

branching could also have important implications for the structure of the

bank regulators. Each of these regulators has traditionally had a regional

structure that has more or less evolved over time. As more and more

banks become multiregional or even national institutions, the old regional

structure may become less relevant and a fundamental shift in

geographical focus may be in order. OCC has recently announced a

reorganization, which is at least partially due to the anticipated effects of

interstate banking.

The Federal Reserve System, due to its broader mandate and unique

structure, faces its own set of challenges. For example, an increased use of

electronic payments in services provided to the Department of the

Treasury and other agencies may result in realignments or reductions in

certain staff at particular reserve banks. These and other challenges may,

in turn, raise questions about the structure of the Federal Reserve System,

such as the size, number, and location of the Federal Reserve banks.

Challenges Faced by

Other Regulatory

Agencies Also Apply

to Depository

Institution Regulators

In enacting the Results Act, Congress realized that the transition to

results-oriented management would not be easy. The difficulties in moving

to results orientation could be especially difficult for a regulatory agency.

We analyzed a set of barriers facing certain regulatory agencies in their

efforts to implement the Results Act in a June 1997 report.7

 These barriers

included the following: (1) problems collecting performance data,

(2) complexity of interactions and lack of federal control over outcomes,

and (3) results realized only over long time frames.

7

Managing for Results: Regulatory Agencies Identified Significant Barriers to Focusing on Results

(GAO/GGD-97-83, June 24, 1997).

Page 15 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

At least to some extent, each of these barriers is also applicable to federal

regulators of depository institutions. For example, in focusing on the

safety and soundness of depository institutions any measure (such as the

average capital to risk-based asset ratio or the number of failed

institutions) would be largely determined by overall economic conditions,

rather than any particular regulatory intervention strategy. Finding

approaches that could effectively disentangle regulatory intervention from

the myriad of other forces influencing outcomes represents a difficult

challenge for all of these agencies as they pursue results-oriented

measurement.

Long time lags between actions and possible results could also be an issue

for regulators of depository institutions. Historically, there has been a

considerable time lag between the time that a financial institution makes a

questionable underwriting decision and the time that a loan goes bad and

finally affects earnings and eventually bank capital, thereby potentially

threatening the institution’s existence. Effective intervention by a

regulator may also not show a result, at least not by many standard

measures, for an extended period. This argues for constructing

sophisticated measures that can account for long time lags and that are

evaluated over a period longer than a year.

Mr. Chairman, one of the most difficult challenges facing these agencies,

as implementation of the Results Act proceeds, will be separating a

program’s impact on the agency’s objectives from the impact of external

factors that are often outside the program or agency’s control. Although

developing performance measures or evaluating program impact is

difficult in these situations, it is important that agencies make efforts

toward that end. We note that all the agencies’ plans we reviewed had one

section that consistently was in need of development: the discussion of

how program evaluations were used to establish goals and how such

evaluations might be used in the future.

In a recent report on the agencies that piloted the use of the Results Act

and their use of program evaluations, we found that almost all had access

to staff trained or experienced in performance measurement or program

evaluation and that this training and experience proved very helpful in the

agencies’ attempts to implement performance measurement.8

 Most of the

agencies whose draft plans we reviewed have research capability and in

some cases a substantial research staff. Such analytical resources provide

8

Managing for Results: Analytic Challenges in Measuring Performance (GAO/HEHS/GGD-97-138,

May 30, 1997).

Page 16 GAO/T-GGD-97-164
Statement 

The Results Act: Observations on Draft

Strategic Plans of Five Financial Regulatory

Agencies

a potential source for researching and developing innovative methods for

measuring results. Any new methods or research approaches developed by

one agency could also be useful to others because, at least in the areas of

supervision and regulation, there are many similarities in the activities

undertaken by these agencies.

This concludes my prepared statement. I would be pleased to respond to

any questions you or other members of the Committee may have.

(233530) Page 17 GAO/T-GGD-97-164
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100