FDIC Urged to Improve Loan Program Oversight

The Federal Deposit Insurance Corporation (FDIC) should make improvements to its supervision of government loan programs to prevent fraud and address other risks, according to a new report.

The FDIC’s Office of Inspector General (OIG) found that the corporation’s supervision of government programs such as the Paycheck Protection Program had fallen short, while it also did not provide adequate guidance for addressing risks or sufficient training for staff overseeing such programs.

The Inspector General made 19 recommendations for improvements, which the FDIC is acting on.

These include the development and implementation of guidance to ensure that assessment, oversight and actions are consistent across the FDIC and other Federal regulators.

The FDIC also needs to obtain better data and improve training for staff working on government loan programs, the OIG’s report stated.

Poor communication and co-ordination with other regulators caused the FDIC to miss indicators that one bank was charging “impermissible fees” totalling an estimated $7.2 million, the report found.

It also criticized record-keeping at the corporation, which hindered its efforts to deal with poor practices in a timely manner.

Risky practices from FDIC-insured banks had contributed to the failure of institutions and Deposit Insurance Fund (DIF) losses totalling more than $140 million, the report concluded.

“It is important that the FDIC proactively identifies and addresses risks for financial institutions that participate in government-guaranteed loan programs, before they result in consumer harm or significant fraud,” the Inspector General stated.

“Until the FDIC addresses the weaknesses presented in this report, there is an elevated risk that the safety and soundness of financial institutions participating in government-guaranteed loan programs may deteriorate, leading to bank failure or consumer harm and ultimately increased risk or loss to the DIF.

The FDIC has endured a torrid year so far in 2023. As well as shouldering the impact of the failures of Silicon Valley Bank and Signature Bank — and being questioned by politicians on its oversight of the banks — it has also been the subject of a poor review of its cybersecurity abilities, also from the Office of Inspector General.

In yet another report, in February the OIG outlined nine key “crisis-readiness” challenges facing the FDIC including data collection and management and the oversight of digital assets.