Regulators' Review Process Broken at Its Foundation

Federal banking regulators have been conducting reviews of their own rulebooks for nearly three decades without establishing basic procedures to identify unnecessary rules, according to a recent Government Accountability Office report.

The report found that the three major banking agencies lack documented procedures for identifying outdated regulations and determining whether to take action on problems they find. This has resulted in a regulatory system where banks face requirements that may be unnecessary, but no one can reliably say whether the review process is doing its job.

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 was supposed to address this issue by requiring federal banking agencies to periodically examine their regulations and weed out burdensome ones. However, the GAO's investigation suggests that the system is broken at its foundation.

The report made six recommendations to the Federal Reserve, FDIC, and Office of the Comptroller of the Currency to develop procedures for identifying outdated or unnecessary regulations and taking action to address them during EGRPRA reviews. The agencies have outlined steps they have taken but neither agreed nor disagreed with the recommendations.

The report's findings highlight the need for building a procedural infrastructure to ensure that regulators can consistently identify which rules warrant reconsideration, demonstrate what changes resulted from their reviews, and determine whether the process is reducing unnecessary regulatory burdens.