Oversight of federally insured state-chartered banks is provided by state bank regulators and either the Federal Reserve System—for banks that are members of the Federal Reserve—or the Federal Deposit Insurance Corporation (FDIC)—for other state-chartered banks. National bank oversight is provided by the Office of the Comptroller of the Currency (OCC). As the deposit insurer, FDIC has back-up oversight authority for all FDIC-insured banks. This authority allows FDIC to examine potentially troubled institutions and take enforcement actions, even when it is not the institution’s primary regulator. In addition to its authority over state-chartered member banks, the Federal Reserve oversees all BHCs. In accordance with a variety of federal laws and regulations, banks routinely provide federal bank regulators with reports containing information about their deposit and lending activities. These reports include the following: a quarterly financial report (call report), which is submitted to the primary an annual independent audit report (for banks with $500 million or more in assets), which is submitted to FDIC and relevant federal and state bank regulators; an annual summary of deposits report for each branch, which is submitted a statement of amounts required to be held as reserves, which is submitted to the Federal Reserve; and an annual report on home mortgage lending (for banks that originate, purchase, or receive applications for home purchase and home improvement loans and that have assets greater than $28 million in 1997), which is submitted to the bank’s primary federal regulator. In addition, as of January 1997, revisions to the Community Reinvestment Act (CRA) interagency regulations require banks that have assets of $250 million or more, or banks that are affiliates of a BHC with assets of $1 billion or more, to report to their regulators some new data. These banks are required to annually report, by geographic location, the aggregate number and aggregate amount of small business and small farm lending loans originated or purchased, and the aggregate number and aggregate amount of community development loans originated or purchased. BHCs are also required to submit to the Federal Reserve quarterly financial reports (Y-9 reports) on the consolidated activities of their bank and nonbank subsidiaries. Federal bank regulators, along with other agencies, typically use the lending and deposit information gathered in these reports and special purpose reviews to carry out their oversight responsibilities. Congress gets information through a variety of means, including directly from bank regulators and also from the legislative support agencies including us, the Congressional Research Service (CRS), and the Congressional Budget Office (CBO). These support agencies, in turn, use the information gathered in these banking reports, along with other sources, to do various analyses for Congress. Parties other than federal regulators, such as industry analysts and community organizations, may also use call reports and Y-9 reports (both of which are publicly available) to produce state, regional, and national summaries of the types and overall dollar amounts of loans and deposits held by banks and BHCs. These parties also frequently use home mortgage-related lending reports to assess the availability of credit to various groups within a geographical area, such as a state. Because a state was the largest area within which a bank could expand, information collected at the bank level has been used by such parties to approximate bank loan and deposit activity within a state. To determine what information regulators collect from banks, we reviewed the laws and regulations pertaining to the requirements for banks and BHCs to report data on bank activities (focusing on loans and deposits). These laws and regulations consisted primarily of those authorizing federal bank regulators to conduct examinations, collect financial statement data, collect bank deposit information, and encourage banks to provide credit to the communities in which they operate. In addition, we obtained regulators’ and others’ views about whether interstate branching would pose new or different needs for information. We concentrated our review on information that is currently collected from banks and BHCs. We did not conduct an independent analysis to identify all of the information that regulators and Congress may need to execute their regulatory and oversight responsibilities. To obtain views on the effect that Riegle-Neal is likely to have on the usefulness of reported loan and deposit data, we held discussions with staff members at the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Dallas, and headquarters and field offices of FDIC and OCC. We also spoke with staff members at CBO and CRS in their roles as users of data for congressional oversight. In addition, we interviewed representatives of several community organizations (the National Community Reinvestment Coalition, the Center for Community Change, and the Association of Community Organizations for Reform Now). We did not attempt to identify all users of reported loan and deposit data. To determine whether there would likely be a material loss of information important to regulatory and congressional oversight of banks, we reviewed call, Y-9, Summary of Deposit, Home Mortgage Disclosure Act (HMDA) loan application register, and required reserve reports collected by the regulators pursuant to laws and regulations. We also reviewed the loan and deposit data the regulators make available to us as the investigative arm of Congress. We then reviewed in greater detail the loan and deposit information that regulators summarized by state, region, and nationwide. We conducted our work between March 1994 and November 1996 in Dallas and Washington, D.C. We provided a draft of this report to the heads of the Federal Reserve, FDIC, and OCC for their review and comment. We also provided the community organizations and other parties we contacted with the opportunity to comment on portions of the draft report that we attributed to them. The comments we received are discussed and evaluated on pages 12 to 14, and the written comments are reprinted in appendixes I and II. Our work was done in accordance with generally accepted government auditing standards. Regulators collect a variety of information about bank loan and deposit activities through reports filed by banks and BHCs. These reporting requirements were not affected by Riegle-Neal. In table 1, we briefly describe the loan reports and the information collected from them. Call reports and Y-9 reports are the primary sources of data that banks and BHCs provide to regulators. Both reports contain a summary of the entity’s loan portfolio categorized by type of loan (e.g., real estate or consumer). The HMDA loan application register and the new CRA report on small business and small farm lending are to collect data, by geographic location, on specific categories of bank loans to assist the regulators in enforcing the federal fair lending laws. Unlike data from call reports and Y-9 reports, data from these reports are collected to assess a bank’s compliance with federal fair lending laws and to assess the bank’s performance in meeting the credit needs of its local community. In addition, the HMDA data are submitted only by banks engaged in originating home mortgage loans; banks that merely purchase loans are not required to submit HMDA data. In table 2, we describe the reports that banks and BHCs use to provide regulators with information about their deposits. Call reports again provide the greatest detail about a bank’s total deposits because they provide a summary of a bank’s total deposits by type (e.g., demand deposits). The Summary of Deposits report provides the most comprehensive information on bank deposits by location, but only provides information on the total bank deposits based on the branch in which the account is located. Additionally, these data are only collected yearly. The Required Reserve report provides more limited information on bank deposits. Although regulators and other interested parties have used call report data to produce state, regional, and national summaries of the types and overall dollar amounts of loans and deposits held by banks, the data reported have always had limitations in their ability to provide information about the geographical location of banking activity. In measuring loan activity, limitations have existed because the data used to compile call reports do not explicitly identify the geographic location of the borrower or the project being funded. As a result, questions exist as to how appropriate it has ever been to assume that the loans held by a bank were made (1) by a banking entity located in the same state in which the bank reporting the loan was chartered or (2) to a party living or doing business in the state where the bank reporting the loan was chartered. These limitations could become more apparent and more widespread once Riegle-Neal is implemented, since the activities reported by banks with interstate operations will clearly include activities in a number of states. According to regulatory officials, loan data reported in the call reports and Y-9 reports do not represent total bank lending in a particular state or region for the following reasons: A significant percentage of a bank’s mortgage loans are sold in secondary markets through such entities as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Banks sometime transfer all, or a portion, of a loan to an affiliated bank or sell loans to unaffiliated banks. Banks make such transfers to diversify portfolios and to ensure compliance with legal lending limits. In addition, some BHCs have their bank subsidiaries transfer all loans of a certain type to one bank to better serve customers and reduce operating expenses. Banks that serve a multistate market (e.g., the metropolitan area of Washington, D.C.) may directly lend to out-of-state customers. Therefore, if a study were trying to determine the amount of loans made by banks to borrowers in a state or region, call report data alone, at least as currently collected and reported, could not answer the question. Researchers interested in studying the geographic distribution of loans noted such limitations before Riegle-Neal was considered. For such studies, data from the HMDA loan application register, and presumably the data to be collected on small business and small farm loans, may be more useful since they provide specific geographic information on borrowers. However, similar geographic information on a bank’s entire loan portfolio is not available from these sources. Call report data on deposits do not identify the location of a bank’s depositors, much as the loan data does not identify the location of a bank’s borrowers. The Required Reserve report serves a specific bank oversight function, as previously described, and is not suited to providing detailed information about the types of deposits or the location of depositors. The most detailed information on the location of depositors is provided by the Summary of Deposits report. This report is the only one that identifies a bank’s deposits by branch. However, regulators pointed out that even the Summary of Deposits report contains inherent limitations regarding the origin of a bank’s deposits. For example, banks may purchase deposits in the national market; in this case, the reporting branch need not reflect either the depositor’s home or business location. Therefore, while a state-by-state analysis of a bank’s Summary of Deposits report identifies where deposits exist, it does not necessarily identify the location of the depositor and, thus, the location from which the funds come. In addition, unlike call report data, which are collected quarterly, the data in the Summary of Deposits report are collected yearly. To the extent that interstate branching becomes prevalent, the usefulness of information reported to bank regulators, which is currently used to compile banking data on a state-by-state basis, would become even more problematic. If BHCs consolidate their operations by merging multistate banking operations or if banks expand across state lines by opening or acquiring branches, call report information would increasingly encompass the loans and deposits of more than one state. Therefore, although the data collected will not change, the geographical information content of the data is likely to become less useful because the data are collected at the bank level rather than the branch level. While the usefulness of data collected at the bank level to provide information for state-by-state measures of banking activity—including monitoring the industry’s geographic concentrations—may be affected by Riegle-Neal, it is unlikely to have a material effect on federal regulation or oversight for three reasons. First, as previously mentioned, the data reported on call reports have always had limitations from the standpoint of imparting geographic information about bank loans. Second, deposit data should continue to be provided at the branch level and, with the limitations noted, should provide some measure of state-by-state banking activity. Third, the most useful and detailed information about bank activities is attained through examinations. Regulators with primary supervisory responsibility still have this tool available, although those who rely solely on off-site information will not. Regulators use the information described in the previously mentioned reports to perform various off-site analyses of banks and BHCs, including (1) financial statements and financial trends, (2) fair lending practices, and (3) market concentrations of deposits. Additionally, bank regulators use call reports and Y-9 reports to assist them in planning, scoping, and conducting safety and soundness examinations or inspections, respectively. Data from these reports provide regulators with financial information about the institutions’ activities and reported financial conditions. Analyses of the data provide insights about the institutions over time and compared with other institutions. To a lesser degree, regulators use the annual independent audit reports in planning safety and soundness examinations for those institutions required to have annual independent audits. Bank regulators are responsible for assessing compliance with various fair lending and consumer protection laws, including the CRA, and they rely, in part, on annual home mortgage-related lending reports to plan, scope, and conduct their compliance and CRA examinations. Likewise, the new small business and small farm loan report is likely to be used in those examinations. The other deposit and reserve reports are not routinely used by regulators in discharging their examination responsibilities, although the related information may be made available to them upon request. These reports are used primarily by FDIC and the Federal Reserve in monitoring institutions’ deposit and reserve activities to assess insurance premiums and to determine that banks are maintaining the proper amount of reserves, respectively. When considering banks’ applications for mergers and acquisitions, bank regulators and the Department of Justice also use the various reports—particularly the Summary of Deposits report and the home mortgage loan report—to assess any antitrust or fair lending implications. With respect to their antitrust review, bank regulators and Justice officials typically look to see if the new banking entity could create an undue concentration of loan or deposit activities in a particular market, which could impede fair and open competition among institutions. Regulatory staff told us that, although the data collected in the various reports are essential to effective off-site monitoring, regulatory actions are rarely, if ever, premised solely upon this information. Off-site information is to be supplemented by on-site examinations or visitations. For example, call reports, which are the most comprehensive and frequently used sources of publicly available information, typically provide regulators with indicators about an institution’s activities and condition. However, the call reports must be supplemented with more detailed and explicit information about the institution’s deposits, lending, and other investment activities. Similarly, the annual home mortgage loan report is used by the bank regulators as an initial indicator of a bank’s performance under the fair lending and CRA laws and regulations, but assessments of the bank’s lending practices involve detailed analyses and generally are supplemented by on-site examinations. Regulators recognize that call reports, as well as the other reports, can only provide indicators of an institution’s activities and must be supplemented through examinations. While bank supervisors use call report data primarily for planning their on-site examinations, FDIC staff members told us that they use these data in their back-up oversight authority. In the past, FDIC staff members have analyzed call report data to identify patterns or trends in industry activity or within geographic areas, particularly those that may indicate a problem that could affect industry stability. Their research is important in identifying historical patterns or trends that can be used to project or anticipate potential bank losses, failures, or crises. FDIC staff members expressed concern that call report data are increasingly becoming less useful for these purposes as consolidation occurs, and they are concerned about further deterioration in the data’s usefulness after Riegle-Neal is implemented. FDIC staff members are considering recommendations to change the call reports to require banks to report their loan and deposit activity by state. Representatives from financial institutions and industry trade groups told us that, on the basis of their past experience, they did not believe that interstate branching would materially affect the usefulness, for regulation or oversight purposes, of lending and deposit information currently collected by federal regulators. Specifically, none of these representatives thought that interstate branching would necessitate that federal bank regulators collect additional data to conduct CRA examinations. They pointed out that Riegle-Neal expands the CRA examination process to require separate state-by-state written evaluations, including a rating, for banks with interstate branches. The act also requires that separate written evaluations, including a rating, be prepared for branches located in multistate metropolitan areas. Finally, officials at the federal bank regulatory agencies stated that section 109 of Riegle-Neal requires their agencies to promulgate uniform regulations by June 1997 that prohibit banks with interstate branch networks from using their out-of-state branches simply to operate as deposit production offices (i.e., as offices that take deposits but do not make loans in their communities). On March 12, 1997, the agencies released for comment a proposal setting forth such regulations. Moreover, at least 1 year after a bank establishes or acquires an interstate branch(es), the appropriate federal banking agency should determine whether the bank is operating the branch(es) as a deposit production office. Representatives from consumer and community organizations did not necessarily believe that a material loss of information would result from interstate banking. However, they stated that to ensure there is no material loss of information necessary to oversee bank activities in an interstate branching environment, banks should be required to submit information on the origin of their loans and deposits. Some representatives suggested that this requirement should take the form of having banks submit call report data for each state in which they operate. In general, the representatives believed that regulators and Congress would better be able to carry out their regulatory and oversight functions if banks were required to submit information on loans by branch as they are required to do for deposits. They also pointed out that such data, by branch, would make it easier for their groups to monitor bank lending activities. As previously noted, many of these organizations had expressed similar concerns about the usefulness of call report data before Riegle-Neal was even considered because information regarding the geographical distribution of loans is one of the groups’ particular concerns. Therefore, the implementation of Riegle-Neal did not give rise to their concern, but does heighten it. We provided a draft of this report to the Chairman of the Board of Governors, Federal Reserve System; the Chairman of the Federal Deposit Insurance Corporation; and the Comptroller of the Currency for their review and comment. We also provided the community organizations we contacted the opportunity to review and comment on a draft of this report. The Federal Reserve and the community organizations did not offer any comments on the draft report. However, the Comptroller of the Currency provided comments in a letter dated February 6, 1997, and the FDIC Chairman commented in a January 27, 1997, letter. The comment letters are reprinted in appendixes I and II. OCC generally agreed with our conclusions, especially given the call report limitations we described. OCC stated that it understood the potential value of more precise geographic information for researching and monitoring regional trends and the relationship between regional economic conditions and bank performance. However, OCC also recognized that reporting is not without its burdens and that proposals to increase reporting requirements must be considered carefully. FDIC expressed some concern with the draft report’s conclusion, but did not disagree that the implementation of Riegle-Neal in and of itself will not cause a material loss of information. FDIC pointed out that for the last decade banks have expanded their lending beyond traditional geographic boundaries and that, to the extent this trend continues, the usefulness of institution-level data will continue to erode. FDIC’s primary concern with our conclusion was that FDIC believes it does not place sufficient emphasis on the effects that interstate branching will have in accelerating this trend and eventually leading to what FDIC considers a material loss of information it uses for statistical and economic studies that assist FDIC in fulfilling its responsibilities. FDIC believes that its need for the geographic data being lost is greatest for large institutions that FDIC insures but does not supervise because these institutions are more likely to have lending exposures outside of their home states. Given FDIC’s unique role and responsibility as deposit insurer, it believes the ongoing loss of geographic data is material to FDIC. In addition, FDIC believes that call report data are the best source of aggregate data, while on-site examinations are less useful for this purpose. However, FDIC acknowledges that, from a cost-benefit perspective, there is a question about what kinds and how much additional data could be justifiably collected—either in call reports or other regulatory reports—that would permit more effective off-site monitoring. FDIC also suggested that our conclusion was in conflict with our report on the bank oversight structure because in that report, we encouraged the use of off-site monitoring to better target and plan on-site examinations. FDIC believes our position in this current report (i.e., the best institution-level information is available through on-site investigation) contradicts our previous position. We understand why FDIC places more emphasis than other regulators on the effect Riegle-Neal may have in eroding the geographic content of call report data, given FDIC’s responsibility to monitor institutions that it does not directly supervise. As deposit insurer, FDIC may have unique research-based information needs that other federal bank regulators do not have. However, while FDIC may need this type of information, we agree with both FDIC and OCC that this need must be balanced against the burdens additional reporting requirements could impose on the industry. Collectively, the bank regulators are in the best position to make such cost-benefit determinations. We do not believe our position in this report contradicts our earlier position on the value of off-site monitoring. Off-site monitoring provides regulators with useful indicators about a bank’s activities and performance that are generally further analyzed through on-site examinations involving the review of more specific information. Regulators are not precluded from requesting information from banks, beyond the information that is reflected in call reports, to enhance their off-site monitoring as well as decisions about on-site examinations. We are sending copies of this report to the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Federal Deposit Insurance Corporation, the Comptroller of the Currency, other members of the banking committees, other interested congressional committees, and other interested parties. We will also make copies available to others upon request. This report was prepared under the direction of Mark Gillen, Assistant Director, Financial Institutions and Markets Issues. Major contributors to this report are listed in appendix III. If there are any questions about this report, please contact me at (202) 512-8678. The following is GAO’s comment on the Federal Deposit Insurance Corporation’s letter dated January 27, 1997. Text was added to eliminate confusion about when FDIC must produce regulations and make determinations about deposit production offices. Jeanne Barger, Issue Area Manager John V. Kelly, Evaluator-in-Charge The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists.

Summary: Pursuant to a legislative requirement, GAO reviewed how the interstate branching provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 are likely to affect the usefulness of the deposit and loan data collected and reported to federal regulators by the banking industry under statutory and regulatory requirements, focusing on whether modifications to such data requirements would help to ensure that the implementation of the act's interstate branching provisions does not result in material loss of information important to regulatory and congressional oversight of banks. GAO noted that: (1) to the extent that interstate branching becomes prevalent, call report data, as currently collected and reported, will become less useful for approximating bank loan and deposit activity within a state; (2) as bank holding companies (BHC) consolidate by merging multistate banking operations and as banks expand across state lines by opening or acquiring branches, call report information reported at the bank level will increasingly encompass the loans and deposits from more than one state; (3) however, accurately measuring loan and deposit activity by state was subject to limitations even before Riegle-Neal; (4) BHCs had already begun establishing interstate operations and creating regional booking centers for some of their activities and national markets have developed for certain bank products; (5) compared with the information that existed before it was enacted, the implementation of Riegle-Neal is unlikely to result in a material loss of information necessary to perform regulatory and congressional oversight for three reasons; (6) first, as previously mentioned, the usefulness of call report data to approximate bank loan or deposit activities within a state was already somewhat limited and has become increasingly so, but only in part due to Riegle-Neal; (7) second, sources of information collected at the branch level or by geographic location should not be affected by interstate branching; (8) for example, summary of deposits data should still be available to measure deposit activities that are booked in a particular state, although these data will not provide information on the geographic source of those deposits; (9) also, home mortgage loan data should be available as an indicator of mortgage loan activity in a geographic area; (10) finally, the most useful and detailed information about bank activities is attained through examinations; (11) regulators with primary supervisory responsibility still have this tool available, although those who rely solely on off-site information will not; and (12) for these reasons, at this time, there does not appear to be sufficient need to modify regulatory or statutory reporting requirements.