Why it Matters

Federal banking regulators have been conducting reviews of their own rulebooks for nearly three decades without the basic infrastructure to know whether those reviews actually work. A new Government Accountability Office report found that the three major banking agencies lack documented procedures for identifying outdated regulations or determining whether to act on problems they find. This has resulted in a regulatory system where banks face requirements that may be unnecessary, and no one can reliably say whether the review process designed to fix this is doing its job.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was supposed to be the solution, requiring federal banking agencies to systematically review their regulations and weed out the burdensome ones. But the GAO's investigation suggests the system is broken at its foundation.

The Regulatory Review Mandate

Congress passed the Economic Growth and Regulatory Paperwork Reduction Act in 1996 to require Federal banking agencies to periodically examine their own rulebooks to identify and address outdated, unnecessary or unduly burdensome regulatory requirements.

Three federal agencies are subject to the law's decennial review requirement. The Office of the Comptroller of the Currency oversees national banks and federal savings associations. The Federal Deposit Insurance Corporation regulates state-chartered banks that are not members of the Federal Reserve System, among other responsibilities. The Board of Governors of the Federal Reserve System supervises bank holding companies and state-chartered banks that are members of the Federal Reserve System. The agencies must review their regulations at least once every 10 years and submit a joint report to Congress.

However, the GAO found that beneath the surface, there is no reliable machinery ensuring that the reviews consistently accomplish their purpose.

The Procedural Void

GAO examined whether the EGRPRA reviews conducted by federal banking agencies are effective, and found that the agencies lacked fully implemented, documented procedures for identifying outdated, unnecessary or unduly burdensome regulations during their reviews. They also lacked documented procedures for determining whether issues raised during EGRPRA reviews warrant action.

Without documented procedures, it is difficult to assess whether federal banking agencies' EGRPRA review efforts are effective or consistent across review cycles. GAO found that outcomes from past reviews were often difficult to identify and that their connection to subsequent regulatory actions was frequently unclear. Some actions included in the agencies' 2017 report were prompted by other statutory requirements or had begun before the review.

GAO also found that the agencies incorporate some leading practices into their EGRPRA reviews, including coordinating across agencies and soliciting public input, but do not fully incorporate others. The missing practices include prioritizing rules for analysis, conducting cost-benefit analyses and assessing the cumulative burden imposed by multiple regulations.

What the GAO Wants

GAO made six recommendations, two each to the Federal Reserve, FDIC and Office of the Comptroller of the Currency. It recommended that each agency develop and implement procedures for identifying outdated, unnecessary or unduly burdensome regulations and taking action to address them during EGRPRA reviews.

GAO also recommended that each agency incorporate, to the extent practicable, a framework for prioritizing rules for retrospective analysis, conducting cost-benefit analyses and assessing cumulative regulatory burdens. The agencies outlined steps they had taken but neither agreed nor disagreed with the recommendations.

The Broader Implication

The EGRPRA review process was intended to provide a mechanism for resolving the tension between maintaining necessary financial safeguards and eliminating requirements that no longer serve their intended purpose. By requiring agencies to systematically examine their regulations, the law created a process through which regulators could identify rules that had become outdated, unnecessary or unduly burdensome. But if that process lacks documented procedures and key analytical practices, it risks becoming performative rather than substantive.

Addressing GAO's findings will require building the procedural infrastructure contemplated by the 1996 law but never fully implemented. Without that infrastructure, regulators cannot consistently identify which rules warrant reconsideration, demonstrate what changes resulted from their reviews or determine whether the process is meaningfully reducing unnecessary regulatory burdens.

Access the Legis1 platform for comprehensive political news, data, and insights.

Spot something wrong? Report an issue with this article