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United States Government Accountability Office - Review of Regulators’ Oversight of Risk Management Systems

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United States Government Accountability Office - Review of Regulators’ Oversight of Risk Management Systems

Review of Regulators’ Oversight of Risk Management Systems at a Limited Number of Large, Complex Financial Institutions
Statement of Orice M. Williams, Director Financial Markets and Community Investment

Testimony Before the Subcommittee on Securities, Insurance, and Investments, Committee on Banking, Housing, and Urban Affairs, U.S. Senate


This is a US Government audit of regulators and banks risk management systems. It is page after page of damning findings clearly stated (no pussy-footing, punch-pulling, mealy-mouthed politeness, but very straight) of weakness, stupidity and failure by regulators and banks. Could all of this be equally true in Europe? No such report has been published in Europe!



In the examination materials GAO reviewed for a limited number of institutions, GAO found that regulators had identified numerous weaknesses in the institutions’ risk management systems before the financial crisis began.

For example, regulators identified inadequate oversight of institutions’ risks by senior management. However, the regulators said that they did not take forceful actions to address these weaknesses, such as changing their assessments, until the crisis occurred because the institutions had strong financial positions and senior management had presented the regulators with plans for change.

Regulators also identified weaknesses in models used to measure and manage risk but may not have taken action to resolve these weaknesses.

Finally, regulators identified numerous stress testing weaknesses at several large institutions, but GAO’s limited review did not identify any instances in which weaknesses prompted regulators to take aggressive steps to push institutions to better understand and manage risks.

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