the ability of the federal reserve to examine, obtain reports from, or take actions to identify or address risks with respect to both nonbank and depository institution subsidiaries of a bank holding company that are supervised by other agencies. consistent with these provisions, we have worked with other regulators and, wherever possible, sought to make good use of the information and analysis they provide. in the process, we have built cooperative relationships with other regulators – relationships that we expect to continue and strengthen further. nevertheless, the restrictions in current law still can present challenges to timely and effective consolidated supervision in light of, among other things, differences in supervisory models – for example, between the safety and soundness approach favored by bank supervisors and the approaches used by regulators of insurance and securities subsidiaries – and differences in supervisory timetables, resources, and priorities. moreover, the growing linkages among the bank, securities, insurance, and other entities within a single organization that i mentioned earlier heighten the potential for these restrictions to hinder effective group - wide supervision of firms, particularly large and complex organizations. to ensure that consolidated supervisors have the necessary tools and authorities to monitor and address safety and soundness concerns in all parts of an organization on a timely basis, we would urge statutory modifications to the fed - lite provisions of the gramm - leach - bliley act. such changes, for example, should remove the limits first imposed in 1999 on the scope and type of information that the federal reserve may obtain from subsidiaries of bank holding companies in furtherance of its consolidated supervision responsibilities, and on the ability of the federal reserve to take action against subsidiaries to address unsafe and unsound practices and enforce compliance with applicable law. limiting the costs of bank failures the timely closing and resolution of failing insured depository institutions is critical to limiting the costs of a failure to the deposit insurance fund. 7 the conditions governing when the federal reserve may close a failing state member bank, however, are significantly more restrictive than those under which the office of the comptroller of the currency may close a national bank, and are even more restrictive than those governing the fdic's backup authority to close an insured depository institution after consultation with the appropriate primary federal and, if applicable, state banking supervisor. the federal reserve generally may close a state member bank only for capital - related reasons. the grounds for which the occ or fdic may close a bank include a variety of non - capital - related conditions, such as if the institution is

of internal auditors'professional standards focus on adding value by meeting the needs of management and the board. internal auditors add value by being effective independent assessors of the quality of the internal control framework and processes. auditors lose their independence when they perform management consulting roles for which they later will have to render an opinion. internal audit is one of the few corporate functions that has both the ability and the responsibility to look across all of the management silos within the corporation and make sure that the system of internal controls has no gaps and that the control framework is continually reviewed to keep up with corporate strategic initiatives, reorganizations, and process changes. when an auditor becomes part of management, the independent view is lost. external audit let's turn to the topic of quality assurance in the external audit process. as supervisors, we must take steps to encourage a high standard of professionalism among auditors. in some cases, this may mean undertaking an enforcement action against an accountant. the agencies are finalizing the accountant debarment rule, which will be one more tool we can use to correct errant behavior. however, before we do that, we should look at the lessons learned from some recent audit failures. the typical fact pattern in these failures indicates that some auditors are focusing on the form rather than the substance of transactions when making critical audit judgments. moreover, when looking at assurance services, such as the fdicia 112 auditor attestations, some auditors have a tendency to gloss over internal control deficiencies or simply ignore significant control deficiencies because they are " immaterial. " it is not meaningful for auditors to apply a financial statement concept of materiality to an attestation engagement on internal controls. from a supervisory perspective, we would consider the existence of a series of such immaterial deficiencies to be useful information in assessing the quality of the internal and external audit process. we need to change this mindset in the auditing community. some of this can be done through dialogue with the american institute of certified public accountants and the public company accounting oversight board, which we are doing. once auditors start to routinely report known deficiencies in internal controls, we should begin to eliminate the gap between what we expect an audit or attestation engagement to include and actual services provided by auditors. however, if we continue to find significant internal control deficiencies in safety and soundness examinations that the auditor knows about but fails to disclose, because they are judged to be