[Update 1: Corrects number of bank failures in 2011.]
President Obama signed into law a bill directing the Inspector General of the Federal Deposit Insurance Corp. and the Government Accountability Office to study the effects of bank failures.
Rep. Lynn Westmoreland, R-Ga., introduced H.R. 2056, which passed the House in August. There were 92 bank failures in 2011, according to the FDIC, down from more than 150 the year before.
The FDIC inspector general will look into the effect of loss-sharing agreements between the FDIC and the receiver bank. It will consider if more loans could be modified without an LSA and if these agreements could be “phased out altogether,” according to the legislation.
The inspector general also will tudy whether field examiners are using appropriate appraisals when determining losses at a troubled bank and how the examiners are determining the adequacy of a bank’s capital levels.
The GAO will study the direct causes of the high level of bank failures in some states. Any state with at least 10 or more failures since 2008 will be a focus. A total of 11 states qualify, led by Georgia with 71 failures over the past three years.
The GAO study will also cover the impact of fair value accounting standards.
Both reports are expected within one year. Two hearings over the findings, one in the House and another in Senate, will be scheduled after the studies are completed.
Write to Jon Prior.
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