# Recent Reports

Reports News from the GAO

- Federal Home Loan Banks: Actions Related to the Spring 2023 Bank Failures What GAO FoundSilicon Valley Bank (SVB), Signature Bank, and First Republic Bank had borrowed substantial secured loans, or advances, from their respective Federal Home Loan Banks (FHLBanks) before their failures in spring 2023. As of year-end 2022, each of the three banks held substantially more FHLBank advances (as a proportion of their total assets) than a group of their peer banks.The three banks increased their outstanding FHLBank advances by 37 to 50 percent in the first 2 weeks of March 2023, when SVB and Signature Bank failed (see table). First Republic Bank’s outstanding advances then largely stabilized until the bank failed on May 1. &nbsp;Percentage Changes in Outstanding Federal Home Loan Bank Advances for Failed Banks, March 1, 2023–Failure Date			Bank 									Date 									Outstanding FHLBank advances (in billions of dollars)									Percentage change								Silicon Valley Bank									March 1									$20.0									50%								March 10									30.0								Signature Bank									March 1									8.2									37								March 12									11.2								First Republic Bank									March 1									19.4									45								May 1									28.1					Source: GAO analysis of Federal Home Loan Bank (FHLBank) advance data. | GAO-24-106957Prior to the three bank failures, the FHLBanks of New York and San Francisco reviewed examination reports for the three failed banks and stated that they met regularly with the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Banks, and other regulators. The two FHLBanks and FDIC communicated about Signature Bank and First Republic Bank as the banks were declining. In addition, the two FHLBanks relied on established policies, procedures, and agreements with the relevant Federal Reserve Banks to help Signature Bank and First Republic Bank access additional funding. However, officials from the FHLBank of San Francisco said that SVB failed before they&nbsp;could coordinate with the Federal Reserve Bank of San Francisco to request additional supervisory information or facilitate SVB’s access to additional funding.Since the bank failures, the FHLBanks have received full repayment for SVB’s and Signature Bank’s advances. The bank that acquired First Republic Bank’s advances has indicated that it intends to repay the advances according to the advance terms.Why GAO Did This StudyBetween March 10 and May 1, 2023, state banking supervisors closed SVB, Signature Bank, and First Republic Bank and named FDIC as receiver.The three failed banks had borrowed substantial secured loans (known as advances) from their respective FHLBanks before their failures. The FHLBanks are government-sponsored enterprises that support liquidity by making advances to member financial institutions and promote housing and community development. SVB and First Republic Bank were members of the FHLBank of San Francisco, and Signature Bank was a member of the FHLBank of New York.GAO was asked to review the role of the FHLBanks with regard to the recent bank failures. This report provides information on the FHLBanks’ funding to the failed banks, their communication and coordination with FDIC and the Federal Reserve System (the failed banks’ primary federal regulators), and repayment of the failed banks’ outstanding advances. This report is one in a series of reports about the bank failures. GAO plans to follow this report with work on broader issues related to the FHLBanks.GAO reviewed relevant laws and regulations; publications, policies, procedures, and other documentation and data from the FHLBanks and the federal banking regulators; and publicly available regulatory reporting data for the three failed banks. GAO also interviewed officials from the FHLBanks, federal banking regulators, and others.For more information, contact Jill Naamane at (202) 512-8678 or NaamaneJ@gao.gov.
- Anti-Money Laundering: Better Information Needed on Effectiveness of Federal Efforts What GAO FoundFinancial institution representatives that GAO interviewed identified actions the Financial Crimes Enforcement Network (FinCEN) could take to enhance the institutions' ability to identify and report suspicious activity. These include more updates on priority threats and tips to improve suspicious activity reports (SAR), which institutions file if they identify potential criminal activity. FinCEN may cover some of these actions as it implements the Anti-Money Laundering Act of 2020, the aims of which include improving information sharing and technology.GAO identified 31 sections in the Anti-Money Laundering Act of 2020 for which FinCEN is responsible for implementing. For example, FinCEN is to establish standards for financial institutions to test new anti-money laundering-related technology. As of November 2023, GAO found that FinCEN collectively had described its progress in implementing 19 sections through multiple publications and in varying detail. More complete disclosure of FinCEN's progress implementing the act would provide greater transparency and accountability.FinCEN surveys law enforcement agencies about their use of and satisfaction with FinCEN's products and services, such as its database of SARs. However, the surveys may not provide reliable information. FinCEN's 2018–2022 surveys had low response rates (ranging from 2 to 10 percent), raising the risk of biased results that do not represent the views of all agencies. FinCEN also did not analyze and adjust, as needed, results for nonresponse bias. As a result, the surveys may not provide FinCEN with a complete and reliable picture of law enforcement's satisfaction with its products and services.Federal agencies, including the Departments of Justice and Homeland Security, individually track outcomes of their illicit finance investigations (e.g., convictions and forfeitures). Some Justice data track these outcomes across multiple federal agencies (see figure). However, comprehensive, government-wide data do not exist because data collection is fragmented across multiple agencies and data may be incomplete. Developing a consistent methodology to comprehensively track outcomes would better inform federal agencies and Congress about the results and effectiveness of U.S. efforts to combat illicit finance.Outcomes of Defendants Charged under Money Laundering-Related Statutes, Fiscal Years 2018–2022Why GAO Did This StudyCriminal organizations launder illicit proceeds to facilitate and conceal crime. The Bank Secrecy Act, as amended, requires financial institutions to file SARs (which help law enforcement investigate crime) under certain conditions. FinCEN administers the act and maintains these reports in a database.GAO was asked to review U.S. efforts to combat illicit finance. This report examines (1) financial institution suggestions to enhance SAR processes, (2) FinCEN communication of its progress implementing the Anti-Money Laundering Act, (3) FinCEN surveys on law enforcement satisfaction with its products and services, and (4) data collection on efforts to combat illicit finance.GAO reviewed laws, guidance, and investigation data and interviewed FinCEN and federal law enforcement agencies. GAO also interviewed a nongeneralizable selection of 46 representatives of financial institutions and industry associations (such as banks, casinos, money services businesses, and broker-dealers).
- Bank Supervision: More Timely Escalation of Supervisory Action Needed What GAO FoundRisky business strategies and weak liquidity and risk management contributed to the failures of Silicon Valley Bank (SVB) and Signature Bank in March 2023. In both banks, rapid growth was an indicator of risk. From 2019 to 2021, the total assets of SVB and Signature Bank grew by 198 percent and 134 percent, respectively. This far exceeded growth for a group of 19 peer banks (33 percent, at the median). In addition, both banks had high percentages of uninsured deposits, which can be an unstable source of funding because customers with uninsured deposits may be more likely to withdraw their funds during times of stress. SVB also was affected by rising interest rates and Signature Bank had exposure to the digital assets industry.In the 5 years prior to 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) and Federal Deposit Insurance Corporation (FDIC) identified concerns with SVB and Signature Bank. But both banks were slow to mitigate the problems the regulators identified and regulators did not escalate supervisory actions in time to prevent the failures.Federal Reserve and FDIC policies require staff to include specific information when communicating supervisory concerns to banks. GAO found that Federal Reserve and FDIC supervisory staff generally adhered to these requirements in communicating concerns to SVB and Signature Bank.Both regulators established internal procedures for when to escalate concerns to informal or formal enforcement actions. However, the Federal Reserve's procedures often were not clear or specific. The procedures often did not include measurable criteria for examiners to use when recommending informal or formal enforcement actions. This lack of specificity could have contributed to delays in taking more forceful action against SVB. Adopting clearer and more specific procedures could promote more timely enforcement action to address deteriorating conditions at banks in the future.In August 2023, FDIC updated its procedures for escalating supervisory concerns to require FDIC examiners to consider escalating supervisory concerns that are repeated or uncorrected at the end of an examination cycle. However, although the new guidance would have required examiners to consider escalation of Signature Bank concerns as early as 2019, it does not require escalation. As a result, it is unclear whether examiners would have escalated concerns to senior management on a timely basis. FDIC officials told us they intend to further update the procedures to expect examiners to require, instead of consider, escalation in these situations.Provisions in the Federal Deposit Insurance Act also help regulators determine when to escalate supervisory concerns. Section 38, also known as prompt corrective action, requires regulators to take increasingly severe actions as a bank's capital deteriorates. However, since the 1990s, GAO and others have reported that the effectiveness of the prompt corrective action framework is limited because it relies on capital measures, which can lag other indicators of bank health. The framework repeatedly has demonstrated weaknesses for addressing deteriorating financial conditions in banks and has not achieved a principal goal of preventing widespread losses to the Deposit Insurance Fund. Noncapital triggers (which could be based on factors such as interest rate risk, asset concentration, and poor management) can signal declining conditions before capital triggers do. Adopting noncapital triggers, such as by amending the Federal Deposit Insurance Act to incorporate such triggers, would encourage earlier action to address deteriorating conditions and also limit losses to the Deposit Insurance Fund by requiring early and forceful regulatory actions tied to unsafe banking practices before they impaired capital.Why GAO Did This StudyThe March 2023 failure of SVB and Signature Bank may cost the Deposit Insurance Fund an estimated $22.5 billion. The failures raised questions about the supervisory practices of the Federal Reserve and FDIC. GAO was asked to examine the regulators' communication and escalation of supervisory concerns in the years before the failures. This report examines the regulators' communication of supervisory concerns to the two banks, procedures for escalating such concerns, and whether adopting noncapital triggers could help regulators take more timely supervisory actions.GAO reviewed Federal Reserve and FDIC internal policies and procedures related to supervisory communication and escalation; analyzed supervisory documentation for SVB and Signature Bank; and spoke with staff from the Federal Reserve, Federal Reserve Bank of San Francisco, and FDIC.
- Financial Audit: Federal Deposit Insurance Corporation Funds' 2023 and 2022 Financial Statements What GAO FoundGAO found (1) the financial statements of the Deposit Insurance Fund (DIF) and of the Federal Savings and Loan Insurance Corporation (FSLIC) Resolution Fund (FRF) as of and for the years ended December 31, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) the Federal Deposit Insurance Corporation (FDIC) maintained, in all material respects, effective internal control over financial reporting relevant to the DIF and to the FRF as of December 31, 2023; and (3) with respect to the DIF and to the FRF, no reportable instances of noncompliance for 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. FDIC made progress during 2023 in addressing a significant deficiency that GAO reported in its prior year audits. Specifically, FDIC sufficiently addressed the deficiencies in contract documentation and payment review process controls such that GAO no longer considers the remaining control deficiencies in this area, individually or collectively, to represent a significant deficiency as of December 31, 2023.In commenting on a draft of this report, FDIC stated that it was pleased to receive unmodified opinions for the 32nd consecutive year on the DIF's and the FRF's financial statements, and noted that GAO reported that FDIC had effective internal control over financial reporting and that there was no reportable noncompliance with tested provisions of applicable laws, regulations, contracts, and grant agreements. FDIC also stated that it was pleased to report that it effectively remediated a significant deficiency in internal control over contract documentation and contract payment review processes. FDIC stated that while its controls have improved, FDIC reiterated its commitment to sound financial management and will continue to look for opportunities to improve.Why GAO Did This StudySection 17 of the Federal Deposit Insurance Act, as amended, requires GAO to audit the financial statements of the DIF and of the FRF annually. In addition, the Government Corporation Control Act requires that FDIC annually prepare and submit audited financial statements to Congress and authorizes GAO to audit the statements. This report responds to these requirements.For more information, contact M. Hannah Padilla at (202) 512-5683 or padillah@gao.gov.
- Financial Technology: SEC Should Prepare a Workforce Plan, Document Oversight Controls, and Set Goals for Innovation Office What GAO FoundSecurities and Exchange Commission (SEC) staff have developed competencies related to crypto assets (digital instruments that depend on cryptography and distributed ledger or similar technology) primarily through their work experience. In addition, SEC has provided subject-specific training and hired new staff with expertise in the area. SEC has about 116 staff who work primarily on matters related to crypto assets, either in specialty units or as subject matter experts who support other staff. The agency offered more than 500 training courses on crypto assets or other financial technology between 2018 and mid-2023. It also posted 40 job announcements for positions specifying crypto-asset competencies between 2019 and 2023. However, SEC has not produced a new workforce planning strategy to update its fiscal years 2019–2022 strategy. Doing so would better position SEC to meet its future workforce needs and to carry out its oversight and policymaking duties related to crypto assets.SEC's Strategic Hub for Innovation and Financial Technology (FinHub) helps coordinate SEC oversight of emerging technology, but it does not have documented policies and procedures and performance goals. FinHub became a stand-alone office in December 2020 and serves as a source of subject matter expertise to coordinate and advise on financial technology issues. While FinHub has operating processes in place, such as to meet with market participants, it has not documented policies and procedures to support internal controls. By doing so, FinHub would have reasonable assurance that it is managing risk appropriately. In addition, FinHub tracks and measures certain performance outputs, such as the number of external inquiries it receives and number of policy issues on which it advises. However, the office has not established performance goals, such as training staff on crypto assets, against which to assess its performance or contribution to SEC's mission. Establishing such goals would enable FinHub to better assess its effectiveness and make any needed improvements.SEC has implemented a range of supervisory technology tools to help support market oversight and achieve its fiscal years 2022–2026 strategic plan's goals. For example, divisions and offices use:a portal to provide data and analyses about funds, broker-dealers, advisers, and other topics;	a dashboard to identify certain categories of potential risks at broker-dealers; and	a tool to detect anomalous patterns in financial reporting and identify situations or activities that may warrant further inquiry.The tools use advanced data analytics and other techniques to detect and investigate potential illegal activity and target high-risk areas for examination, among other outcomes. SEC's fiscal year 2024 performance plan adds two new performance goals related to its use of supervisory technology. In its annual 2022 and 2023 statements, SEC's Office of the Inspector General included the use of technology and analytics to meet SEC's mission requirements as a significant management and performance challenge facing the agency.Why GAO Did This StudyCrypto assets and other financial technologies, which have grown rapidly, offer potential benefits and pose risks. For example, crypto assets had a market value of around $1.2 trillion in October 2023. Such technology and its rapid evolution may present oversight challenges, and GAO recently reported that regulatory gaps exist over certain crypto assets. Some policymakers have raised questions about SEC's competencies in financial technology products and services, including crypto assets.GAO was asked to review SEC's financial technology expertise and other issues. This report examines (1) SEC's efforts to develop its staff's crypto-asset competencies, (2) FinHub's policies and procedures, and (3) SEC's use of supervisory technology, among other objectives.GAO reviewed and analyzed SEC documentation and data on its workforce planning, hiring, and training; FinHub's policies and procedures; and SEC's supervisory technology. GAO also interviewed SEC staff who work on matters related to crypto assets, including through six focus groups (total of 32 staff), and representatives of nine industry, consumer, or state regulatory associations.
- Federal Reserve Lending Programs: Status of Monitoring and Main Street Lending Program What GAO FoundIn response to the COVID-19 pandemic, the Board of Governors of the Federal&nbsp;Reserve System authorized 13 emergency lending programs—known as facilities—to ensure the flow of credit to various parts of the economy. To improve oversight, the Federal Reserve issued five internal reports from December 2020 through June 2023 that identified opportunities to enhance internal processes and controls, including for collateral and asset management. GAO found that Federal Reserve Banks, which manage the facilities, addressed almost all of these opportunities. As of September 2023, no new enhancement opportunities had been identified. GAO also found the Federal Reserve's plans for ongoing monitoring of the facilities generally aligned with federal internal control standards for ongoing monitoring of an entity's internal control system.GAO analysis shows that while uncertainties exist in the credit markets targeted by the facilities, vulnerabilities remain low. Corporate bond issuances are higher than prepandemic levels, and credit spreads (which reflect borrowing costs) generally remain low. These factors indicate that corporations have relatively easy access to credit. However, according to GAO analysis of available data and survey results, small businesses' access to credit has decreased since 2022, as banks have tightened credit standards in response to a less positive economic outlook and industry-specific problems. Also, municipal bond issuances have decreased since mid-2022 and are at prepandemic levels. This trend reflects challenges for raising new debt or refinancing existing debt, especially given that interest rates have increased. However, debt levels carried in sectors the facilities targeted appear sustainable.Of the 1,830 loans made through the Main Street Lending Program,1,175 (or 64 percent) remained outstanding as of the end of August 2023, the most recent data available (see figure). Since required interest payments began in August 2021, most borrowers have been making them on time. However, delinquent payments increased to about 7.6 percent in August 2023, which may reflect the effects of increased interest payments as variable rates on Main Street loans have risen. GAO found that 610 loans (or about 33 percent) had been fully repaid, and 45 loans (or about 2.5 percent) had recorded losses.Main Street Lending Program Outstanding Loans, First Quarter 2021–Third Quarter 2023Note: Third quarter 2023 reflects data as of the end of August 2023.Why GAO Did This StudyAs of September 2023, several of the Federal Reserve's 13 lending facilities continued to hold large amounts of outstanding assets and loans. Nine of the 13 facilities received funds appropriated through the CARES Act (section 4003). Of these nine, six had a total of about $12 billion in outstanding assets and loans. About 72 percent of this amount—about $8.6 billion—was held by facilities under the Main Street Lending Program, which supported loans to small and midsize businesses and nonprofits. The Federal Reserve is required to monitor and report on the facilities until they no longer hold outstanding assets or loans.The CARES Act includes a provision for GAO to periodically report on section 4003 loans, loan guarantees, and investments. This report examines (1) the Federal Reserve's oversight and monitoring of the CARES Act facilities, (2) trends in the credit markets that the facilities targeted, and (3) the status and performance of Main Street Lending Program loans.GAO reviewed Federal Reserve Bank documentation and analyzed agency and other data on the facilities and credit markets, including data on short- and long-term corporate credit market indicators. GAO also conducted loan-level analysis of Main Street Lending Program loans and interviewed Federal Reserve officials.For more information, contact Michael E. Clements at (202) 512-8678 or clementsm@gao.gov.
- Pandemic Risk: Federal Insurance Approaches Would Entail Costs to Taxpayers and Businesses Might Not Participate What GAO FoundPrivate insurance played a limited role in addressing business losses from the COVID-19 pandemic. Some businesses turned to business interruption coverage to recoup losses. But insurers generally did not pay pandemic-related claims, because nearly all policies required physical damage to property. Insurers paid some pandemic-related claims in other property/casualty lines, including event cancellation and workers' compensation. Many insurers since have reduced their exposure to pandemic risk, primarily by adding physical damage requirements or virus exclusions or removing previously available virus coverage. Actuaries, insurance experts, insurers, and reinsurers generally agree pandemic risk—which involves potentially large, widespread, and difficult-to-predict losses—is largely uninsurable because it does not meet key insurability criteria.In a potential federal pandemic insurance program, the government could (1) share risk with insurers or (2) assume all the risk, with insurers acting as administrators. Either approach could have benefits but also likely would face challenges in efficiently providing widespread, affordable coverage to businesses and achieving other desired policy goals.Risk-sharing could help reduce federal fiscal exposure and promote a larger private market for pandemic insurance. However, stakeholders agreed that given the magnitude of potential losses (estimated at more than $1 trillion based on the experience with COVID-19), insurers might be able to assume only a small share of the risk.	Both approaches could make premiums affordable, but doing so likely would require large subsidies or financial assistance to businesses. While some businesses might buy coverage, others might forgo coverage, because they believed another pandemic would not happen soon or would expect other government assistance if it did.	Both approaches could promote risk mitigation and leverage insurers' claims-processing expertise. But insurers told GAO that processing millions of claims in a short time could be costly and challenging for the industry.Given these potential difficulties, Congress also could consider other (noninsurance) responses to the next pandemic, as it did in response to COVID-19. These options (such as a program to help businesses pay operating expenses) could be costly but reach millions of businesses quickly. But distributing assistance quickly without proper controls could leave programs at risk of improper payments and fraud.Experiences of COVID-19 emergency assistance programs in the United States and other nations provide important insights on how the federal government could improve its response to future pandemics. For instance, the government could share risk or program costs with private entities such as businesses or banks, implement measures to prevent improper payments and fraud (as GAO recommended in multiple reports), and proactively plan for the next pandemic to reduce uncertainty.Why GAO Did This StudyBusinesses across the United States experienced disruptions, declines in demand, and mandated closures during the COVID-19 pandemic. Emergency relief programs enacted in 2020 and 2021 provided about $4.6 trillion for pandemic response and recovery, with about $1.2 trillion going to small businesses in the form of loans and grants. The potential for very large losses raises the question of what role insurers and the federal government might play in a future pandemic.The CARES Act includes a provision for GAO to monitor federal efforts related to COVID-19. This report examines (1) the role insurance played addressing pandemic business losses, (2) benefits and challenges of federal insurance approaches for addressing such losses, and (3) benefits and challenges of federal noninsurance approaches for addressing such losses.GAO analyzed information on insurance claims and reviewed criteria for insurability, proposals for federal pandemic insurance programs, and related academic and industry studies. To identify and obtain views on the benefits and challenges of federal insurance and noninsurance approaches, GAO reviewed academic and other studies, including GAO reports. GAO also held two panel discussions and multiple interviews with insurance industry participants and experts, among others.For more information, contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov.
- COVID-19 Relief: Treasury Could Improve Its Administration and Oversight of State and Local Fiscal Recovery Funds What GAO FoundNearly all—$325.5 billion—of the $350 billion in State and Local Fiscal Recovery Funds (SLFRF) was allocated to state and local governments. As of March 31, 2023, states reported obligating 60 percent and spending 45 percent of SLFRF awards they received. Localities reported obligating 54 percent and spending 38 percent, of SLFRF awards they received. Recipients have until December 31, 2024, to obligate, and until December 31, 2026, to spend their awards.Officials in all 18 selected states and most larger selected localities GAO reviewed said they expanded their capacity to manage their awards, such as by reassigning existing or hiring new staff. Officials in most smaller localities said they administered their SLFRF awards with their existing staff and processes.Officials in most selected states and localities told GAO they benefitted from using their SLFRF awards to replace revenue lost during the pandemic—an allowable use under the SLFRF program. Specifically, they said that using funds to replace lost revenue (1) enhanced spending flexibilities by allowing funding of a broad range of government services; and (2) made it easier to meet the Department of the Treasury's reporting requirements.State and local officials identified a range of challenges in using their SLFRF awards, such as those related toPerformance indicators.  Officials in some selected states and one selected locality told GAO that the performance indicators they are required to report do not always align with their uses of SLFRF awards. Treasury established these indicators to understand and aggregate program outcomes across SLFRF recipients. However, some selected state and local officials said they needed clarity from Treasury on how to report on required performance indicators when they do not align with their uses of SLFRF awards and spending categories. Based on GAO's analysis, Treasury updated its guidance on November 30, 2023, to clarify reporting on these indicators.	Treasury assistance.  Officials in most selected states and some selected localities told GAO that the assistance Treasury provided by telephone or email through its Contact Center was not timely and did not meet their needs. Treasury established the center to field and respond to recipients' inquiries about programs administered by Treasury, but these officials said limited resources affected Treasury's assistance. Treasury has assessed some, but not all, of its staffing needs, limiting its ability to provide timely and useful assistance going forward.Treasury has established monitoring procedures for reviewing states' and localities' spending reports and annual single audit findings. Treasury modified its procedures for reviewing spending reports, adapting to lessons it learned. However, it did not document those changes in key internal program guidance, creating a risk that the new procedures will not be implemented consistently. Additionally, Treasury did not issue timely management decisions pertaining to SLFRF findings in recipients' single audit reports. As a result, Treasury does not have reasonable assurance that unallowable uses of funds are identified or remediated.Why GAO Did This StudyIn March 2021, the American Rescue Plan Act of 2021 appropriated $350 billion through the SLFRF to help tribal governments, states, localities, the District of Columbia, and U.S. territories cover costs stemming from the health and economic effects of the COVID-19 pandemic.The CARES Act includes a provision for GAO to report on its ongoing monitoring and oversight efforts related to the pandemic. GAO was also asked to review Treasury's administration of SLFRF. This report, part of a series on COVID-19 assistance to recipients, examines selected states' and localities' (1) actions to administer their awards, and (2) benefits and challenges they experienced, as well as (3) Treasury's plan to monitor the use of awards and the extent to which it has been implemented.GAO reviewed documents and interviewed officials in 18 states and 18 localities (one per state) selected based on SLFRF funding amount, population size, and geographic region. Combined, these states represent nearly 60 percent of the U.S. population and were allocated 60 percent of SLFRF funds. GAO also reviewed Treasury's policies and procedures for monitoring recipients' award uses and reviewing spending reports and single audit findings.
- Economic Sanctions: Agency Efforts Help Mitigate Some of the Risks Posed by Digital Assets What GAO FoundDigital assets like Bitcoin and other virtual currencies pose risks to implementing and enforcing U.S. sanctions, but several factors partially mitigate these risks (see table). A key feature of digital assets is that they enable users to rapidly transfer value across countries' borders. Yet many digital assets are recorded on a public ledger, which may enable U.S. agencies and analytics firms to trace transactions and potentially identify illicit actors. However, digital asset owners also may use the anonymizing features of some digital assets or other techniques that obscure their identities in an attempt to evade sanctions.Selected Risks Digital Assets Pose to Sanctions Implementation and Enforcement and Factors that Help Mitigate Risks			Examples of Risks Digital Assets Pose to Sanctions Implementation and Enforcement 									Examples of Factors that Help Mitigate Risks Posed by Digital Assets 								Digital assets provide users some anonymity, and actors may use techniques that obscure their financial transactions.				Actors may take advantage of discrepancies between legal systems and financial reporting requirements in different jurisdictions to avoid consequences of illicit financial activity.				Sanctioned actors may use cybercrime to generate revenue, for example by stealing digital assets.									Agencies may be able to trace transactions on public blockchains and identify illicit actors.				Use of digital assets as a means of payment is limited and the value of digital assets is highly volatile.				The implementation of global standards may lead to increased compliance with Anti-Money Laundering requirements.					Source: GAO. | GAO-24-106178Because digital assets currently have relatively limited use as a payment mechanism, sanctioned entities and other illicit actors may seek to convert digital assets to a more traditional currency in jurisdictions with weak regulations and limited sanctions programs. Efforts to increase compliance with global standards may help to mitigate this risk, but uneven implementation from country to country remains a vulnerability that sanctioned actors may exploit.The risks digital assets pose to sanctions implementation will likely continue to evolve. An increase in the use and acceptance of digital assets could erode the potency of U.S. sanctions and lead to greater sanctions evasion. On the other hand, advancements in capabilities to trace transactions and identify illicit actors could mitigate some sanctions evasion risks.GAO found that agencies have taken various actions to address the risks posed by digital assets to U.S. sanctions implementation. For example, the Department of the Treasury (Treasury) has sanctioned, and the Department of Justice (DOJ) and other agencies have taken enforcement actions against, entities and individuals for facilitating sanctions evasion with digital assets. Treasury, the Department of State, DOJ, and other agencies also work with international organizations and foreign partners to build investigative capacity and implement anti-money laundering standards to protect the global financial system from digital assets being used for illicit purposes, including sanctions evasion.Why GAO Did This StudyThe increasing use of digital assets may pose challenges for the implementation and enforcement of U.S. sanctions. As of October 2023, the total market capitalization of all cryptocurrencies was about $1.1 trillion, according to one index. The U.S. maintains dozens of economic sanctions programs to serve a range of foreign policy goals. Sanctions may place economic restrictions on entire countries, sectors of countries' economies, individuals, or entities. Such restrictions can include, for example, denying a designated entity access to the U.S. financial system or freezing an entity's assets under U.S. jurisdiction.GAO was asked to review matters relating to the national security implications of certain types of digital assets. This report describes (1) the risks that digital assets pose to U.S. agencies' ability to implement and enforce U.S. sanctions and factors that may mitigate those risks, and (2) actions U.S. agencies have taken to address the risks that digital assets present with regard to implementing and enforcing U.S. sanctions.GAO interviewed agency officials and reviewed government reports, guidance, and press releases related to sanctions actions and digital assets. GAO also interviewed 15 stakeholders who GAO selected based on their experiences related to digital assets and sanctions. These stakeholders, many of whom had prior government experience, included researchers, representatives of the digital assets industry, and individuals who provide legal or advisory services on sanctions and digital assets issues.For more information, contact Kimberly Gianopoulos at (202) 512-8612 or gianopoulosk@gao.gov.
- Troubled Asset Relief Program: Lifetime Cost What GAO FoundIn October 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) in response to the financial crisis. EESA established the Office of Financial Stability (OFS) within the Department of the Treasury and created the Troubled Asset Relief Program (TARP). TARP-funded programs were designed to assist financial institutions and markets, businesses, homeowners, and consumers.EESA originally authorized TARP to purchase or guarantee up to $700 billion in assets. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 reduced that amount to $475 billion. By the time all TARP-funded programs concluded, on September 30, 2023, the total amount disbursed was $443.5 billion. However, after repayments, sales, dividends, interest, and other income, the lifetime cost of TARP-funded programs was $31.1 billion, significantly less than its original authorization (see figure). Further, while there will be no effect on the net cost, TARP has over $14.2 billion in unused funds that it will return to Treasury at the end of fiscal year 2025.Lifetime Cost of TARP-Funded ProgramsOFS established several programs under TARP to help stabilize the U.S. financial system, restart economic growth, and prevent avoidable foreclosures. For example:The Capital Purchase Program (CPP) was launched in October 2008 to help stabilize the financial system by providing capital to viable financial institutions. Through CPP, Treasury disbursed a total of $204.9 billion to 707 institutions in 48 states, Puerto Rico, and the District of Columbia. After repayments, sales, dividends, and interest, however, the program resulted in a net gain of $16.3 billion.	The Community Development Capital Initiative (CDCI) was created in February 2010 to help certified community development financial institutions and the communities they serve cope with the effects of the financial crisis. Though CDCI disbursed a total of $570.1 million, the final cost of the program—after repayments, sales, dividends, and interest—was $67.5 million.	The Automotive Industry Financing Program (AIFP) was launched in December 2008 to help prevent the collapse of General Motors and Chrysler, which would have significantly disrupted the U.S. auto industry. AIFP disbursed $79.7 billion in loans and equity investments. After repayments, sales, dividends, and interest, the program cost a total of $12.1 billion.	The American International Group, Inc. (AIG) Investment Program was intended to prevent the disorderly failure of AIG, which the U.S. government concluded would have caused catastrophic damage to the nation's financial system and economy. Starting in November 2008, Treasury used TARP funds to invest $67.8 billion in AIG, helping to secure its liquidity. After repayments, sales, dividends, interest, and other income related to AIG, TARP's ultimate cost was $15.2 billion. However, Treasury also received non-TARP shares of AIG, and the $17.5 billion in proceeds it received from the sale of these shares not only offset the TARP costs but resulted in a net gain for Treasury.	OFS launched two housing programs—Making Home Affordable and the Hardest Hit Fund—to help struggling homeowners avoid foreclosure and stabilize the housing market. In addition, TARP provided support to the Federal Housing Administration Refinance Program, designed to assist borrowers whose homes were worth less than the remaining amounts due on their mortgage loans. Under the terms of these programs, recipients were not required to repay the government for funds they received. In total, these programs assisted more than 3.3 million homeowners and supported neighborhood improvement efforts at a final cost of $31.4 billion.	Various additional TARP-funded programs disbursed $59.1 billion and resulted in a net gain of $11.4 billion.Why GAO Did This StudyEESA provided GAO with broad oversight authority to track actions related to TARP. GAO audited TARP's financial statements annually, including the costs of the individual programs, since the program's inception. For the entire 15-year duration of TARP, GAO issued unmodified (clean) opinions on its financial statements. In addition, GAO performed many other audits of TARP-funded programs and made over 70 recommendations for corrective action, most of which Treasury implemented. With the conclusion of TARP in September 2023, GAO can now summarize the ultimate cost of the program.For more information, contact Cheryl Clark at (202) 512-3406 or ClarkCE@gao.gov.
- Financial Audit: Consumer Financial Protection Bureau's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Consumer Financial Protection Bureau's (CFPB) financial statements as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) CFPB maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested.In commenting on a draft of this report, CFPB stated that it was pleased to receive an unmodified audit opinion on its fiscal years 2023 and 2022 financial statements and on its internal control over financial reporting. In addition, CFPB stated that it will continue to work to enhance its system of internal control and ensure the reliability of its financial reporting.Why GAO Did This StudyTitle X of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Full-Year Continuing Appropriations Act, 2011, both require CFPB to prepare financial statements annually and require GAO to audit the agency's financial statements. This report responds to these requirements.For more information, contact James R. Dalkin at (202) 512-3133 or dalkinj@gao.gov.
- Financial Audit: Securities and Exchange Commission's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the United States Securities and Exchange Commission's (SEC) and its Investor Protection Fund's (IPF) financial statements as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) SEC maintained, in all material respects, effective internal control over financial reporting for SEC and for IPF as of September 30, 2023 and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested.In commenting on a draft of this report, SEC stated that it is pleased that GAO found that its financial statements and notes were presented fairly, in all material respects, in conformity with U.S. generally accepted accounting principles. SEC recognized the significant deficiency reported and stated that SEC staff put corrective actions in place to remediate the significant deficiency by September 30, 2023.Why GAO Did This StudySEC is required by law to annually prepare and submit audited financial statements covering all accounts and associated activities of the agency to Congress and the Office of Management and Budget. Further, the Securities Exchange Act of 1934, as amended in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), requires SEC to annually prepare and submit a complete set of audited financial statements for its IPF to Congress. In accordance with its authority to audit statements and schedules prepared by executive agencies and their components, GAO audited the SEC and IPF financial statements.Section 963 of the Dodd-Frank Act further requires that (1) SEC annually submit a report to Congress describing management's responsibility for internal control over financial reporting and assessing the effectiveness of such internal control during the fiscal year; (2) the SEC Chair and Chief Financial Officer attest to SEC's report; and (3) GAO assess the effectiveness of SEC's internal control over financial reporting and evaluate, attest to, and report on SEC's assessment. Accordingly, this report also includes GAO's reporting in response to the requirement under the Dodd-Frank Act.For more information, contact M. Hannah Padilla at (202) 512-5683 or padillah@gao.gov.
- Financial Audit: Federal Housing Finance Agency's FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Federal Housing Finance Agency's (FHFA) financial statements as of and for the fiscal years ended September 30, 2023, and 2022 are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) although internal controls could be improved, FHFA maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. In its written comments on a draft of this report, FHFA stated that it was pleased to accept GAO's unmodified audit opinions. In addition, it will continue to enhance its internal control and ensure the reliability of its financial reporting. This includes coordinating with its stakeholders involved in the financial statement consolidation process to implement additional controls to address the significant deficiency.Why GAO Did This StudyThe Housing and Economic Recovery Act of 2008 established FHFA as an independent agency empowered with supervisory and regulatory oversight of the housing-related government-sponsored enterprises: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the 11 Federal Home Loan Banks, and the Office of Finance. This act requires FHFA to prepare financial statements annually and requires GAO to audit the agency's financial statements. In accordance with the act, GAO audited FHFA's financial statements.For more information, contact Anne Sit-Williams at (202) 512-7795 or sitwilliamsa@gao.gov.
- Financial Audit: Office of Financial Stability's (Troubled Asset Relief Program) FY 2023 and FY 2022 Financial Statements What GAO FoundGAO found (1) the Office of Financial Stability's (OFS) financial statements for the Troubled Asset Relief Program (TARP) as of and for the fiscal years ended September 30, 2023, and 2022, are presented fairly, in all material respects, in accordance with U.S. generally accepted accounting principles; (2) OFS maintained, in all material respects, effective internal control over financial reporting for TARP as of September 30, 2023; and (3) no reportable noncompliance for fiscal year 2023 with provisions of applicable laws, regulations, contracts, and grant agreements GAO tested. As of September 30, 2023, all TARP programs have closed, and there are no remaining troubled assets held by OFS. In commenting on a draft of this report, OFS stated that it is proud to receive an unmodified opinion on its financial statements and its internal control over financial reporting. OFS also stated that it has always been committed to maintaining high standards and transparency in carrying out its responsibilities for TARP.Why GAO Did This StudyThe Emergency Economic Stabilization Act of 2008 (EESA) that authorized TARP on October 3, 2008, includes a provision for TARP, which is implemented by OFS, to annually prepare and submit to Congress and the public audited fiscal year financial statements that are prepared in accordance with U.S. generally accepted accounting principles. EESA further states that GAO shall audit TARP's financial statements annually. Since OFS sold all of its troubled assets and all programs are closed, this will be the final set of audited financial statements for TARP.For more information, contact Cheryl E. Clark at (202) 512-3406 or clarkce@gao.gov.
- Credit Cards: Pandemic Assistance Likely Helped Reduce Balances, and Credit Terms Varied Among Demographic Groups What GAO FoundApproximately half of active credit card accounts carried a balance during the period from June 2013 through 2019, according to GAO's analysis of a nongeneralizable sample of more than 650,000 credit card accounts from the Board of Governors of the Federal Reserve System. This included almost 35 percent of all active accounts in the highest credit score category (720 and above) and more than 30 percent of all active accounts in zip codes with median household incomes of $150,000 or more.After the onset of the COVID-19 pandemic in March 2020, cardholders in the GAO sample generally paid down credit card balances and carried balances for shorter periods, according to GAO's analysis. Specifically, the share of all active accounts that carried a balance declined from 50 to 45 percent from April 2020 to December 2021 (see figure). Federal pandemic assistance likely contributed to these improvements. GAO analysis suggests that after March 2020, cardholders who carried balances increased their average credit card payments during the months when pandemic assistance payments were disbursed.Percentage of Active Credit Card Accounts That Carried a Balance, 2019–2021Note: GAO's analysis was based on a nongeneralizable sample of active general purpose credit card accounts. This figure excludes the percentage of active credit card accounts that were seriously delinquent (90 or more days), which was less than 1 percent during this period.Cardholder accounts in the sample that were in billing zip codes with a majority of Black or African American or Hispanic or Latino residents likely had higher interest rates and lower credit limits and carried balances longer compared with accounts in predominantly White zip codes, as indicated by GAO analysis. For example, the difference in interest rates was on average about 1.3 percentage points. Cardholders in the sample that were in majority-Black or -Hispanic zip codes continued to face higher interest rates and lower credit limits as compared with cardholders in predominantly White zip codes who had the same credit scores, zip-code income distribution, and revolving status. While accounts in the sample that were in majority-Black or -Hispanic zip codes carried smaller balances than accounts in predominantly White zip codes, higher interest rates combined with carrying balances longer can result in higher credit costs.Why GAO Did This StudyCredit cards are the most common consumer lending product by number of users, with 82 percent of U.S. adults holding a credit card in 2022. However, credit card adoption rates vary by race, ethnicity, and income. Consumers can use credit cards as a convenient means of payment and source of credit. Some consumers do not always pay off their monthly credit card balances and can accumulate interest and fees over time, which can lead to debt burden and affect their financial health. In addition, the COVID-19 pandemic caused significant economic disruptions and has affected consumers' credit card usage.GAO was asked to review consumer credit card usage. This report examines (1) consumer credit card usage from 2013 through 2019, (2) how the COVID-19 pandemic and related assistance affected credit card usage from March 2020 through December 2021, and (3) how credit card costs and usage vary among racial/ethnic groups.GAO analyzed a nongeneralizable sample of credit card data from the Federal Reserve for June 2013–December 2021 and used the Census Bureau's American Community Surveys to estimate the median household income and racial and ethnic composition in cardholders' zip codes. GAO also reviewed research from the Consumer Financial Protection Bureau, Federal Reserve, and academics. Further, GAO interviewed representatives of federal agencies, six large credit card issuers, three credit reporting agencies, a banking association, and a consumer advocacy organization.For more information, contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov.
- Financial Technology: Agencies Can Better Support Workforce Expertise and Measure the Performance of Innovation Offices What GAO FoundFinancial technology refers to the use of technology and innovation to provide financial products and services. The Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) require many of their staff responsible for policymaking and oversight related to financial technology to have some level of technological skills, according to 181 position descriptions GAO reviewed. The skill requirements ranged from basic technological skills, such as knowledge of office software, to more specialized knowledge, such as expertise in data analysis. The agencies expressly required knowledge of financial technology in 18 of the position descriptions. GAO held focus groups with agency staff where less than half of the participants said they had financial technology-related skills.The agencies have taken some steps to incorporate leading workforce planning practices identified by GAO in prior work. For example, all of the agencies have developed programs or provided training to help develop staff knowledge of financial technology. However, the agencies have not systematically or comprehensively collected data on their policymaking and oversight staff's technological skills related to financial technology or conducted assessments to determine the financial technology skills these staff need. The agencies also have not measured the effectiveness of their financial technology training in addressing their skill needs. By fully incorporating leading workforce planning practices, the agencies could help ensure their staff have the knowledge and skills needed to effectively conduct policymaking and oversight related to financial technology.CFPB, NCUA, and OCC have offices dedicated to addressing innovation in financial technology or the financial industry more broadly. These innovation offices research and monitor industry developments and communicate with industry participants, such as through conference participation (though CFPB's and OCC's offices have recently paused or stopped some outreach and innovation-related activities). The three innovation offices, however, have not developed performance goals or measures that target their key activities. Doing so could help ensure the offices are better able to assess the effectiveness of their initiatives and the extent to which they are accomplishing their missions.All of the regulators reported using a variety of technologies to improve their supervisory capabilities. Examples include a tool that reviews compliance with certain legal requirements and the use of machine learning techniques to help identify risk. Additionally, all of the regulators had at least one strategic objective focused on improving supervision with technology. However, CFPB, the Federal Reserve, NCUA, and OCC have not developed performance measures for these objectives. Doing so could better position the agencies to gauge their progress toward enhancing their supervisory capabilities through the use of technology.Why GAO Did This StudyFinancial institutions are increasingly using financial technology. However, policymakers have raised questions about whether regulators' staff have the technological skills and expertise needed to oversee entities offering products and services that use this technology. GAO was asked to review regulators' financial technology expertise, among other issues. This report examines (1) the technological skills or expertise of regulators' staff, (2) regulators' workforce planning practices, (3) how regulators address innovation in financial technology, and (4) how regulators use technology to improve their supervisory capabilities.GAO reviewed 181 position descriptions and documentation on regulators' workforce planning, innovation offices, and supervisory technology. GAO also conducted 16 focus groups with nongeneralizable samples of policymaking and oversight staff from each agency (90 total staff across the five agencies).
- Financial Stability Oversight Council: Assessing Effectiveness Could Enhance Response to Systemic Risks What GAO FoundThe Financial Stability Oversight Council (FSOC) regularly uses its authority to issue nonbinding recommendations in its annual reports to address financial stability risks. From 2012 through 2014, FSOC used its authority to designate nonbank entities and financial market utilities for additional regulation. It also used its authority to recommend that regulators apply new or heightened standards for certain financial activities or practices once, in 2012. However, FSOC has never used its authority to designate certain activities as systemically important. According to FSOC Secretariat staff, most risks can be addressed through annual report recommendations or other means and thus, FSOC has not used its other authorities in recent years.FSOC's Use of Selected Authorities, 2012–2023 Limitations in FSOC's authorities may affect its ability to respond to systemic risk. In previous work, GAO highlighted limitations in FSOC's authorities—including the nonbinding nature of its recommendations—and recommended Congress consider legislative changes to align FSOC's authorities with its mission to respond to systemic risks. GAO maintains that aligning FSOC's authorities with its mission to respond to systemic risk would help FSOC respond to risks that its current authorities do not effectively address. In April 2023, FSOC proposed new guidance on its authority to designate nonbank entities for additional regulation. The new guidance would facilitate FSOC's ability to exercise this authority, as well as its authority to apply new or heightened standards for financial activities or practices, because it removed some procedures FSOC was to perform under previous guidance in connection with these authorities. For example, the proposed guidance removed provisions for FSOC to perform cost-benefit analyses before it could use these authorities.FSOC conducted three internal evaluations of its policies, procedures, and governance structure since 2013, but these reviews do not represent a comprehensive evaluation of all FSOC activities. FSOC does not have a process to determine what aspects of its activities it should evaluate and when. Regular and comprehensive reviews by FSOC on the effectiveness of its policies, procedures, and governance structure could help it identify areas for improvement and thus enhance its ability to respond to systemic risk. For instance, recent bank failures provide FSOC with an opportunity to assess its procedures for identifying and following up on annual report recommendations it made related to interest rate risk, a factor in the failures.Why GAO Did This StudyThe Dodd-Frank Wall Street Reform and Consumer Protection Act created FSOC in 2010 to identify and respond to potential risks to the stability of the U.S. financial system. The act granted FSOC authorities to make recommendations and designate certain entities and activities for additional regulation to allow it to respond to potential risks. Recent bank failures demonstrate the importance of a regulatory system that is able to respond to risks before they cause systemic issues.This report examines FSOC's authorities to respond to potential threats to financial stability, including (1) how it used its authorities, (2) the extent to which its authorities and procedures support its ability to respond, and (3) the extent to which FSOC has evaluated whether its procedures and governance structure facilitate its ability to respond. GAO analyzed FSOC documents, including annual reports and guidance on the nonbank designation process. GAO also interviewed FSOC Secretariat staff, member agency staffs, and four experts, selected on factors including relevant research.
- Violent Extremism: Agencies' and Financial Institutions' Efforts to Link Financing to Domestic Threats What GAO FoundUnder U.S. law, domestic terrorism is generally defined as involving&nbsp;criminal acts dangerous to human life occurring in the U.S. or its territories that appear intended to coerce a civilian population or influence or affect the conduct of government. The Federal Bureau of Investigation (FBI) and the Department of Homeland Security (DHS) use the term domestic violent extremism to refer to a variety of domestic terrorism threats.Domestic violent extremists commonly self-finance their attacks through generally legal means (for example, using income or savings to pay for travel) in small dollar amounts, according to experts. Government reports and research also identified the risks of domestic violent extremist groups using other licit mechanisms to finance their activities, such as selling merchandise with messages supporting their cause. Many of these mechanisms implicate First Amendment protections (e.g., free speech), thereby limiting the ability to monitor the activity to the same extent as unprotected activity.These characteristics make it difficult for financial institutions and for agencies to identify the financial behavior of domestic violent extremists as suspicious or linked to a violent activity. Some financial institutions (which must report suspicious financial activity to the Department of the Treasury) indicated that unless a customer expressed some sort of terrorist sentiment or violent intent, they would have little way of knowing a transaction was related to violent extremism. Most investigations of such extremists that lead to criminal charges do not include charges for financial crimes, according to DOJ officials. But they also noted that information about their financial activity can help investigators establish patterns of behavior or identify leads.Multiple mechanisms exist to share information on suspicious financial activities related to threats from domestic violent extremists.Treasury's Financial Crimes Enforcement Network (FinCEN) shares financial information and analysis related to ongoing investigations with law enforcement agencies and engages with banks and other financial institutions. It also coordinates with international partners about the risks of the financial activity of domestic violent extremists.	Since 2015, the National Counterterrorism Center (NCTC), FBI, and DHS, have produced a booklet on indicators of violent extremist mobilization to aid law enforcement and the public in identifying threats of violence. The most recent version (2021) includes some indicators of suspicious financial activity, such as sudden disposal of personal assets. However, FinCEN was not involved in development of these indicators, partly because the process relied on the Intelligence Community. Although Treasury's Office of Intelligence and Analysis was included in the process, previous updates have not solicited input from FinCEN. NCTC officials said the booklet was not an intelligence product and they supported agencies seeking relevant expertise. As the threat of domestic violent extremism continues to evolve, FinCEN's expertise could help further refine and update financial indicators in future booklets.Why GAO Did This StudyIn 2022, DHS, FBI, and NCTC concluded that domestic violent extremists, fueled by various ideological and sociopolitical grievances, posed a sustained threat of violence to the American public, democratic institutions, and government and law enforcement officials.GAO was asked to review the funding mechanisms and financial activity of domestic violent extremists. This report examines: (1) available information about the sources of funds and financial activity of domestic violent extremists; (2) the difficulties of identifying and linking financial activity to violent extremist activity; and (3) U.S. agency efforts to share information with each other and the public to identify and track such funding and financial activity.GAO reviewed documentation and reports from Treasury, intelligence and law enforcement agencies, and international and nonprofit organizations focused on violent extremism. GAO also interviewed Treasury, NCTC, FBI, and DHS officials; experts in terrorist financing or extremism; and representatives of 11 financial institutions and seven other private-sector entities.
- U.S. Consolidated Financial Statements: Improvements Needed in Internal Controls over Treasury and OMB Preparation Processes What GAO FoundGAO's audit of the fiscal year 2022 consolidated financial statements of the U.S. government (CFS) identified control deficiencies in the processes the Department of the Treasury, in coordination with the Office of Management and Budget (OMB), used to prepare the CFS. These control deficiencies contributed to material weaknesses in internal control that involve the federal government's inability toadequately account for intragovernmental activity and balances between federal entities;	reasonably assure that the consolidated financial statements are (1) consistent with the underlying audited entities' financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles (U.S. GAAP); and	reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Budget Deficit and (2) Statements of Changes in Cash Balance from Budget and Other Activities is complete, properly supported, and consistent with the underlying information in the audited entities' financial statements and other financial data.GAO found that Treasury, as part of a working group, has made significant progress in addressing the control deficiencies related to treaties and other international agreements (TIA) identified in previous years. GAO closed the five recommendations related to TIAs and made two new TIA recommendations in this report that are better aligned with the current status of the remaining control deficiencies related to TIAs.GAO also identified two new control deficiencies in the processes Treasury used to prepare the CFS.Treasury did not sufficiently identify information significant component entities submitted for inclusion in the CFS that did not link directly to information reported in the respective entities' audited financial statements.	Treasury did not reasonably assure the reliability of information used from sources other than significant component entities' audited financial statements to prepare the social insurance sections of the CFS.These deficiencies increase the risk that material amounts and disclosures may not be presented in the CFS in accordance with U.S. GAAP. In addition to the five closed TIA-related recommendations, Treasury implemented corrective actions that resolved one other open recommendation. As part of its fiscal year 2023 CFS audit, GAO will continue to monitor the status of corrective actions to address the five new recommendations made in this report as well as the nine open recommendations from prior years.Why GAO Did This StudyThe Secretary of the Treasury, in coordination with the Director of OMB, prepares the  Financial Report of the United States Government, which includes the CFS. Since GAO's first audit of the fiscal year 1997 CFS, certain material weaknesses and other limitations on the scope of its work have prevented GAO from expressing an opinion on the accrual-based consolidated financial statements. As part of the fiscal year 2022 CFS audit, GAO identified continuing material weaknesses and other control deficiencies in the processes used to prepare the CFS.The objectives of this report are to provide (1) details on new control deficiencies GAO identified related to the processes Treasury used to prepare the CFS, along with related recommendations, and (2) the status of corrective actions that Treasury, in coordination with OMB, has taken to address GAO's prior recommendations related to the processes used to prepare the CFS that remained open as of the completion of GAO's audit of the fiscal year 2021 CFS.
- Priority Open Recommendations: Securities and Exchange Commission What GAO FoundIn June 2022, GAO identified three priority recommendations for the Securities and Exchange Commission (SEC), which related to SEC's oversight of the Financial Industry Regulatory Authority, Inc. (FINRA). Since then, SEC has implemented all three priority recommendations. Specifically, SEC has adopted performance measures to help assess the effectiveness of its oversight of FINRA as well as policies and procedures to identify, communicate, and monitor significant findings from its inspections and examinations of FINRA.As of June 2023, GAO identified one new priority recommendation for SEC, which calls for developing a coordination mechanism with the other federal financial regulators for identifying and addressing blockchain risks. A formal mechanism with established processes and time frames could help the federal financial regulators collectively identify blockchain risks and develop timely and appropriate responses.SEC's continued attention to this issue could improve protections for investors and mitigate illicit finance and threats to financial stability.Why GAO Did This StudyPriority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015, GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations.For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or GarciaDiazD@gao.gov.
- Priority Open Recommendations: Federal Deposit Insurance Corporation What GAO FoundIn June 2022, GAO identified one priority recommendation for the Federal Deposit Insurance Corporation (FDIC) to coordinate with the other banking regulators and communicate to banks engaged in third-party relationships with fintech lenders on the appropriate use of alternative data in the underwriting process. FDIC has not implemented this priority recommendation.As of June 2023, GAO identified one additional priority recommendation for FDIC to develop a coordination mechanism with other federal financial regulators for identifying and addressing blockchain risks.FDIC's continued attention to these issues could improve its ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.Why GAO Did This StudyPriority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015, GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations.For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or GarciaDiazD@gao.gov.
- Priority Open Recommendations: Board of Governors of the Federal Reserve System What GAO FoundIn May 2021, GAO identified 3 priority recommendations for the Federal Reserve.As of July 2023, the Federal Reserve had not implemented these priority recommendations and GAO identified 1 additional priority recommendation for the Federal Reserve, bringing the total number to 4. These recommendations involve the following areas:Blockchain technology	Financial technology	Stress testing of banking institutionsThe Federal Reserve's attention to these issues could improve its ability to more effectively oversee risks to consumers and the safety and soundness of the U.S. banking system.Why GAO Did This StudyPriority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015 GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations.For more information, contact Daniel Garcia-Diaz at (202) 512-8678.
- Priority Open Recommendations: Office of the Comptroller of the Currency What GAO FoundIn May 2022, GAO identified 1 priority recommendation for the Office of the Comptroller of the Currency (OCC), which was identified in a letter to Treasury.As of July 2023, OCC had not implemented this priority recommendation and GAO identified 1 additional priority recommendation for OCC, bringing the total number to 2. These recommendations involve the following areas:Blockchain technology	Financial technologyFully implementing these open recommendations could significantly improve OCC's efforts to supervise and examine the operations of its chartered banks.Why GAO Did This StudyPriority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015, GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations.For more information, contact Daniel Garcia-Diaz at (202) 512-8678.
- Flood Insurance: FEMA's New Rate-Setting Methodology Improves Actuarial Soundness but Highlights Need for Broader Program Reform What GAO FoundIn October 2021, the Federal Emergency Management Agency (FEMA) began implementing Risk Rating 2.0, a new methodology for setting premiums for the National Flood Insurance Program (NFIP). The new methodology substantially improves ratemaking by aligning premiums with the flood risk of individual properties, but some other aspects of NFIP still limit actuarial soundness. For example, in addition to the premium, policyholders pay two charges that are not risk based. Unless Congress authorizes FEMA to align these charges with a property’s risk, the total amounts paid by policyholders may not be actuarially justified, and some policyholders could be over- or underpaying. Further, Congress does not have certain information on the actuarial soundness of NFIP, such as the risk that the new premiums are designed to cover and projections of fiscal outlook under a variety of scenarios. By producing an annual actuarial report that includes these items, FEMA could improve understanding of Risk Rating 2.0 and facilitate congressional oversight of NFIP.Risk Rating 2.0 is aligning premiums with risk, but affordability concerns accompany the premium increases. FEMA had been increasing premiums for a number of years prior to implementing Risk Rating 2.0. By December 2022, the median annual premium was $689, but this will need to increase to $1,288 to reach full risk. Under Risk Rating 2.0, about one-third of policyholders are already paying full-risk premiums. Many of these policyholders had their premiums reduced upon implementation of Risk Rating 2.0. All others will require higher premiums, including 9 percent who will eventually require increases of more than 300 percent. Further, Gulf Coast states are among those experiencing the largest premium increases. Policies in these states have been among the most underpriced, despite having some of the highest flood risks.Estimated Premium Changes under Risk Rating 2.0, as of December 2022Annual premium increases for most policyholders are limited to 18 percent by statute. These caps help address some affordability concerns in the near term, but have several limitations.First, the caps perpetuate an unfunded premium shortfall. GAO estimated it would take until 2037 for 95 percent of current policies to reach full-risk premiums, resulting in a $27 billion premium shortfall (see figure below). The costs of shortfalls are not transparent to Congress or the public because they are not recognized in the federal budget and become evident only when NFIP must borrow from the Department of the Treasury after a catastrophic flood event.	Second, the caps address affordability poorly. For example, they are not cost-effective because some policyholders who do not need assistance likely are still receiving it. Concurrently, some policyholders needing assistance likely are not receiving it, and the discounts will gradually disappear as premiums transition to full risk.	Third, the caps keep NFIP premiums artificially low, which undercuts private-market premiums and hinders private-market growth.An alternative to caps on annual premium increases is a means-based assistance program that would provide financial assistance to policyholders based on their ability to pay and be reflected in the federal budget. Such a program would make NFIP’s costs transparent and avoid undercutting the private market. If affordability needs are not addressed effectively, more policyholders could drop coverage, leaving them unprotected from flood risk and more reliant on federal disaster assistance. Addressing affordability needs is especially important as actions to better align premiums with a property’s risk could result in additional premium increases.Estimated Premium Shortfall and Percentage of National Flood Insurance Program Policies at Full-Risk Premiums, by Calendar YearFEMA has had to borrow from Treasury to pay claims in previous years and would have to use revenue from current and future policyholders to repay the debt. NFIP’s debt largely is a result of discounted premiums that FEMA has been statutorily required to provide. In addition, a statutorily-required assessment has the effect of charging current and future policyholders for previously incurred losses, which violates actuarial principles and exacerbates affordability concerns. Even with this assessment, it is unlikely that FEMA will ever be able to repay the debt as currently structured. For example, with the estimated premium shortfalls, repaying the debt in 30 years at 2.5 percent interest would require an annual payment of about $1.9 billion, equivalent to a 60 percent surcharge for each policyholder in the first year. Such a surcharge could cause some policyholders to drop coverage, leaving them unprotected from flood risk and leaving NFIP with fewer policyholders to repay the debt. Unless Congress addresses this debt—for example, by canceling it or modifying repayment terms—and the potential for future debt, NFIP’s debt will continue to grow, actuarial soundness will be delayed, and affordability concerns will increase.Risk Rating 2.0 does not yet appear to have significantly changed conditions in the private flood insurance market because NFIP premiums generally remain lower than what a private insurer would need to charge to be profitable. Further, certain program rules continue to impede private-market growth. Specifically, NFIP policyholders are discouraged from seeking private coverage because statute requires them to maintain continuous coverage with NFIP to have access to discounted premiums, and they do not receive refunds for early cancellations if they switch to a private policy. By authorizing FEMA to allow private coverage to satisfy NFIP’s continuous coverage requirements and to offer risk-based partial refunds for midterm cancellations replaced by private policies, Congress could promote private-market growth and help to expand consumer options.Why GAO Did This StudyNFIP was created with competing policy goals—keeping flood insurance affordable and the program fiscally solvent. A historical focus on affordability has led to premiums that do not fully reflect flood risk, insufficient revenue to pay claims, and, ultimately, $36.5 billion in borrowing from Treasury since 2005.FEMA’s new Risk Rating 2.0 methodology is intended to better align premiums with underlying flood risk at the individual property level.This report examines several objectives, including (1) the actuarial soundness of Risk Rating 2.0, (2) how premiums are changing, (3) efforts to address affordability for policyholders, (4) options for addressing the debt, and (5) implications for the private market.GAO reviewed FEMA documentation and analyzed NFIP, Census Bureau, and private flood insurance data. GAO also interviewed FEMA officials, actuarial organizations, private flood insurers, and insurance agent associations.
- Blockchain in Finance: Legislative and Regulatory Actions Are Needed to Ensure Comprehensive Oversight of Crypto Assets What GAO FoundBlockchain allows users to conduct and record tamper-resistant transactions that multiple parties make without a central authority, such as a bank, when used for financial transactions. Because of these characteristics, blockchain-related products and services have the potential to produce cost savings, faster transactions, and other benefits over their traditional counterparts. However, these benefits have not been fully realized. Furthermore, the significant risks these products pose have been realized and negatively affected consumers and investors. For example, crypto assets have experienced price volatility. Also, the bankruptcy of FTX Trading Ltd., a prominent crypto asset trading platform, led to the discovery that a substantial portion of the platform's assets might be missing or stolen, according to bankruptcy-related documents.GAO found gaps in regulatory authority over two blockchain-related products that raise consumer and investor protection and financial stability concerns.No federal financial regulator has comprehensive authority to regulate the spot market for crypto assets that are not securities. In contrast, platforms that trade crypto asset securities and operate as exchanges as defined by federal securities laws are subject to registration and regulation as national securities exchanges, unless an exemption applies. Several platforms without federal oversight have experienced fraud and trading manipulation. By providing for more comprehensive oversight of these platforms, Congress could better ensure users' protection from unfair and manipulative trading practices.	Gaps in regulatory authority exist in the oversight of stablecoins (a crypto asset purported to hold a stable value relative to a fiat currency, such as the U.S. dollar). To keep their value, issuers often state their stablecoins are backed by reserve assets. But no uniform standards exist for reserve levels and risks or for public disclosure of reserves. This increases the risk that a stablecoin may not be able to hold its value and honor user redemption requests. To the extent these stablecoins become more integrated into the financial system, their failures could pose risks to financial stability. By providing for consistent and comprehensive oversight of stablecoins, Congress could better ensure protections for consumers, investors, and the financial system.Regulators lack an ongoing coordination mechanism for addressing blockchain risks in a timely manner. For example, regulators identified financial stability risks posed by stablecoins in 2019, but they did not identify the need for Congressional action to address the risks until November 2021 (in a report issued through the President's Working Group on Financial Markets). A formal coordination mechanism for addressing blockchain-related risks, which could establish processes or time frames for responding to risks, could help federal financial regulators collectively identify risks and develop timely and appropriate responses. In turn, this could improve protections for consumers and investors, mitigate illicit finance and threats to financial stability, and promote responsible innovation and U.S. competitiveness.Why GAO Did This StudyBlockchain-related financial products and services have grown substantially in recent years. For example, crypto assets reached a peak market capitalization of nearly $3 trillion in November 2021. However, recent volatility, bankruptcies, and instances of fraud in these markets illustrate the harm consumers and investors may face without adequate protections. Regulators and industry stakeholders are concerned regulatory gaps may limit regulators' ability to address risks these products and services pose. Modernizing the financial regulatory system is on GAO's high-risk list, partly because some entities are not subject to comprehensive regulation.GAO was asked to study the regulation of blockchain-related financial products and services. Among other objectives, this report examines regulatory gaps and coordination in regulating these applications. GAO reviewed and analyzed government and industry reports, government guidance and speeches, and laws and regulations. GAO interviewed agency officials and market participants and observers.
- Priority Open Recommendations: Department of the Treasury What GAO FoundIn May 2022, GAO identified 22 priority recommendations for the Department of the Treasury (Treasury). Since then, Treasury has addressed seven of those recommendations by, among other things, designing policies and procedures to monitor recipients' use of Coronavirus State and Local Fiscal Recovery Funds and updating USASpending.gov to improve the prominence and accessibility of information about the website's available data and any known limitations. GAO also moved one priority open recommendation to a separate letter for the Office of the Comptroller of the Currency.In July 2023, GAO identified 19 additional priority recommendations for Treasury, bringing the total number to 33. These recommendations involve the following areas:Improving program oversight and controls	Ensuring cybersecurity and information privacy	Improving federal financial management	Protecting workers' retirement savings	Improving the timeliness of Social Security and Medicare Trust Fund reportsTreasury's continued attention to these issues could lead to significant improvements in government operations.Why GAO Did This StudyPriority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015 GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations.For more information, contact Michelle Sager at (202) 512-6806 or sagerm@gao.gov.
- Venezuela: Illicit Financial Flows and U.S. Efforts to Disrupt Them What GAO FoundIllicit financial flows related to Venezuela include proceeds from the sale of commodities such as oil and gold, among others, as well as drug trafficking.Oil remains a major source of income for Venezuela and has been a mechanism for fraud and corruption, according to Treasury officials. Venezuelan oil continues to be exported to other countries, such as China.Illicitly-mined gold from Venezuela has been refined and its origins otherwise disguised in the Caribbean, Latin America, the Middle East, and Africa before entering international markets, according to U.S. government–funded research. Venezuelan gold was subsequently exported to countries in Europe, the Middle East, and East Asia.Drugs are trafficked through Venezuela, destined for U.S. and European markets. State has described Venezuela as a preferred route for trafficking drugs, predominately cocaine. Individuals in the Maduro regime collaborated with the National Liberation Army (Ejército de Liberación Nacional, known by its Spanish abbreviation ELN) and dissidents of the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia, known as FARC dissidents) to transport cocaine through Venezuela, according to the Commander of the U.S. Southern Command.Venezuelan actors—including criminal organizations, corrupt individuals in the Maduro regime, and others—attempt to export these commodities globally and take steps to cloud their origins. Venezuelan actors use shell companies and familial or business contacts acting as proxies to hide their assets. Venezuelan elites continue to use complex transnational mechanisms to move, store, and trade their wealth abroad, according to State-funded research.U.S. agencies have undertaken efforts to disrupt these flows. State and Treasury have provided assistance to partner countries in the region to build their capacity to disrupt criminal activity in general and, to some extent, financial crimes in particular. However, Treasury officials noted that the volume of illicit financial flows is overwhelming for many partners in the region. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued financial advisories on corruption in Venezuela. Treasury also designated more than 300 individuals and entities related to Venezuela, blocking their assets and generally prohibiting U.S. persons (which include businesses, such as financial institutions) from dealing with them. DOJ and DHS have based criminal investigations on the information they have collected. DOJ has charged at least 35 individuals with money laundering–related crimes connected to Venezuela and secured convictions for some, according to reporting by DOJ’s Fraud Section. DOD monitors drug movements in the region, including those from Venezuela, and has provided money laundering–related intelligence analysis to U.S. law enforcement agencies. Other than these, DOJ, DHS, and DOD do not have any efforts specifically directed at illicit financial activity related to Venezuela.Why GAO Did This StudyMuch of Venezuela is ungoverned, undergoverned, or ill governed, according to the Department of State. In 2019, the U.S. ceased to recognize Nicolás Maduro as Venezuela's president and suspended embassy operations in Venezuela, according to State. U.S. agencies have indicated that the illegitimate Maduro regime allows and tolerates the use of its territory by transnational criminal organizations (TCO), including U.S.-designated foreign terrorist organizations, for drug trafficking and other criminal enterprises. According to the 2022 Caribbean Border Counternarcotics Strategy, the ongoing political instability in Venezuela provides a permissive smuggling environment for TCOs, and Venezuela’s corrupt political and security infrastructure enables officials to participate in, and profit from, these illicit activities.GAO was asked to review transnational organized crime related to Venezuela. For this report, we analyzed illicit financial flows connected to Venezuela. Specifically, we examined (1) what U.S. agencies know about illicit financial flows connected to Venezuela and (2) U.S. efforts to disrupt those flows. To address our objectives, we analyzed intelligence reports, diplomatic cables, criminal analyses, and U.S. government–funded research. We interviewed officials of the Departments of Defense (DOD), Homeland Security (DHS), Justice (DOJ), State, and the Treasury in Washington, D.C. We also met with U.S. officials at U.S. Southern Command and Joint Interagency Task Force–South in Florida in July 2022.For more information, contact Chelsa Kenney at 202-512-2964 or KenneyC@gao.gov.
- Bank Regulation: Preliminary Review of Agency Actions Related to March 2023 Bank Failures What GAO Found&nbsp;Risky business strategies along with weak liquidity and risk management contributed to the recent failures of Silicon Valley Bank and Signature Bank. In both banks, rapid growth was an indicator of risk. In 2019–2021, the total assets of Silicon Valley Bank and Signature Bank grew by 198 percent and 134 percent respectively—far exceeding growth for a group of 19 peer banks (33 percent growth in median total assets). To support their rapid growth, the two banks relied on uninsured deposits, which can be an unstable source of funding because customers with uninsured deposits may be more likely to withdraw their funds during times of stress. Additionally, Silicon Valley Bank was affected by rising interest rates and Signature Bank had exposure to the digital assets industry. The banks failed to adequately manage the risks from their deposits.In the 5 years prior to 2023, regulators identified concerns with Silicon Valley Bank and Signature Bank, but both banks were slow to mitigate the problems the regulators identified and regulators did not escalate supervisory actions in time to prevent the failures.The Federal Reserve Bank of San Francisco rated Silicon Valley Bank as satisfactory up until the bank received its first large bank rating in 2022. The Reserve Bank downgraded Silicon Valley Bank in June 2022 and began working on an enforcement action in August 2022. However, it did not finalize the action before the bank failed.	The Federal Deposit Insurance Corporation (FDIC) took multiple actions to address supervisory concerns related to Signature Bank's liquidity and management, but did not substantially downgrade the bank until the day before it failed.GAO has longstanding concerns with escalation of supervisory concerns, having recommended in 2011 that regulators consider adding noncapital triggers to their framework for prompt corrective action (to help give more advanced warning of deteriorating conditions). The regulators considered noncapital triggers, but have not added them to the framework, thus missing a potential opportunity to take early action to address deteriorating conditions at banks.Why GAO Did This StudySilicon Valley Bank and Signature Bank failed during March 10–12, 2023. At the time of closure, they were among the 30 largest U.S. banks. The failures raised questions about bank management, federal supervision, and the events leading to regulators' decisions to use emergency authorities.For more information, contact Michael Clements at (202) 512-8678 or clementsm@gao.gov.
- Management Report: Continued Improvements Needed in FDIC's Internal Control over Contract Documentation and Payment-Review Processes What GAO FoundDuring the audits of the 2022 and 2021 financial statements of the two funds that the Federal Deposit Insurance Corporation (FDIC) administers—the Deposit Insurance Fund (DIF) and the Federal Savings and Loan Insurance Corporation Resolution Fund (FRF)—GAO continued to identify deficiencies in FDIC’s controls over contract documentation and payment-review processes that collectively represent a significant deficiency in FDIC’s internal control over financial reporting that merits attention by those charged with FDIC governance.GAO communicated to FDIC management detailed information regarding these control deficiencies and made four new recommendations to address them. For three prior open recommendations GAO found that FDIC implemented corrective actions during 2022 to resolve one of these recommendations. As a result, GAO closed this recommendation. Therefore, FDIC currently has six open GAO financial audit recommendations intended to improve FDIC’s internal controls over financial reporting, as well as to bring FDIC into conformance with its own policies and Standards for Internal Control in the Federal Government.Why GAO Did This StudyThe purpose of this report is to present (1) the internal control deficiencies identified during GAO's audit testing of FDIC's 2022 nonpayroll operating expenses and (2) the status of FDIC's corrective actions to address GAO's recommendations related to internal control deficiencies identified in prior-year reports that were open as of December 31, 2021. GAO intends this report for FDIC management use.
- Bank Regulation: Preliminary Review of Agency Actions Related to March 2023 Bank Failures What GAO FoundRisky business strategies along with weak liquidity and risk management contributed to the recent failures of Silicon Valley Bank and Signature Bank. In both banks, rapid growth was an indicator of risk. In 2019–2021, the total assets of Silicon Valley Bank and Signature Bank grew by 198 percent and 134 percent respectively—far exceeding growth for a group of 19 peer banks (33 percent growth in median total assets). To support their rapid growth, the two banks relied on uninsured deposits, which can be an unstable source of funding because customers with uninsured deposits may be more likely to withdraw their funds during times of stress. Additionally, Silicon Valley Bank was affected by rising interest rates and Signature Bank had exposure to the digital assets industry. The banks failed to adequately manage the risks from their deposits.In the 5 years prior to 2023, regulators identified concerns with Silicon Valley Bank and Signature Bank, but both banks were slow to mitigate the problems the regulators identified and regulators did not escalate supervisory actions in time to prevent the failures.&nbsp;The Federal Reserve Bank of San Francisco rated Silicon Valley Bank as satisfactory up until the bank received its first large bank rating in 2022. The Reserve Bank downgraded Silicon Valley Bank in June 2022 and began working on an enforcement action in August 2022. However, it did not finalize the action before the bank failed.	The Federal Deposit Insurance Corporation (FDIC) took multiple actions to address supervisory concerns related to Signature Bank's liquidity and management, but did not substantially downgrade the bank until the day before it failed.This testimony was a request. GAO has longstanding concerns with escalation of supervisory concerns, having recommended in 2011 that regulators consider adding noncapital triggers to their framework for prompt corrective action (to help give more advanced warning of deteriorating conditions). The regulators considered noncapital triggers, but have not added them to the framework, thus missing a potential opportunity to take early action to address deteriorating conditions at banks.Why GAO Did This StudySilicon Valley Bank and Signature Bank failed during March 10–12, 2023. At the time of closure, they were among the 30 largest U.S. banks. The failures raised questions about bank management, federal supervision, and the events leading to regulators' decisions to use emergency authorities.For more information, contact Michael Clements at (202) 512-8678 or ClementsM@gao.gov.