APPENDIX

June 4, 1986

Statement of Hon. Stan Lundine

The Depository Institution Examination Improvement Act of 1986

Mr. Chairman, today's hearing on the Depository Institution Examination Improvement Act marks an important step toward the resolution of a serious problem facing the banking industry today. For several months now my colleague Tom Carper and I have been meeting with industry and agency officials to discuss what is generally agreed to be a real gap in the safety and soundness of our banking system.

As you know, the impetus for this legislation was the recognition that the agencies supervising our nation's depository institutions are in many instances unable to maintain an adequate pool of well-trained examiners and supervisors. Of course, without a sufficient number of experienced and expert personnel, early detection of a financial institution's problems is extremely difficult. We can only guess at how many of the more serious problems which we have experienced in the past few years could have been avoided through more thorough scrutiny by an efficient and well-staffed examination system.

The financial services industry is a rapidly changing, constant ly growing one. Keeping up with the often subtle yet complex changes that occur will present an increasing challenge to federal regulatory agencies in the months

and years to come. These agencies' resources will certainly be taxed and st retched.

While I do not pretend that the legislation that Congressman Carper and I have int roduced will solve all of the problems that these agencies may face, I do think that it is a beginning. The compensation and training of examiners and the structure of the examination system itself must be scrutinized. Changes in these areas will most certainly lead to an

improvement of the overall safety and soundness of the system.

In the months since this bill was originally introduced, Congressman Carper and I have worked to accomodate the suggestions of those agencies most closely involved with the examination process, and the suggestions of the Financial Institutions Subcommittee staff. The amended version of our legislation, int roduced yesterday, reflects these suggestions.

Mr. Chairman, I believe that this legislation brings to light problems that are often overlooked during discussions on regulatory reform, and I am happy to have the opportunity today to hear what our panel of witnesses has to say on this subject.

STATEMENT

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

THE HON. THOMAS R. CARPER

MR. CHAIRMAN, TODAY'S HEARING REPRESENTS A SIGNIFICANT MILESTONE IN THE EFFORTS OF MANY OF US TO ENHANCE THE EXAMINATION AND SUPERVISION OF OUR NATION'S DEPOSITORY INSTITUTIONS, A KEY TO ENSURING THE SAFETY AND SOUNDNESS OF THESE BANKS, THRIFTS AND CREDIT UNIONS. I WANT TO TAKE THIS OPPORTUNITY TO THANK YOU AND YOUR STAFF FOR YOUR EFFORT AND SUPPORT IN THIS ENDEAVOR AND TO THANK MR. WYLIE AND HIS STAFF FOR ALL THEIR CONSTRUCTIVE INPUT.

LAST OCTOBER, MY COLLEAGUE STAN LUNDINE AND I INTRODUCED THE DEPOSITORY INSTITUTIONS EXAMINATION IMPROVEMENT ACT, H.R. 3567. WE WERE GRATIFIED THAT ALMOST THREE QUARTERS OF OUR COLLEAGUES ON THE COMMITTEE JOINED US AS COSPONSORS OF THIS BILL. AFTER MONTHS OF DISCUSSIONS WITH THE AGENCIES INVOLVED AND COMMITTEE STAFF,

YESTERDAY CONGRESSMAN LUNDINE AND I INTRODUCED H.R. 4917 - A MODIFIED VERSION OF OUR ORIGINAL BILL. THIRTY-SEVEN OF OUR COLLEAGUES ON THE

BANKING COMMITTEE JOINED US AS ORIGINAL COSPONSORS OF OUR REVISED

LEGISLATION.

THE ORIGINAL BILL GREW OUT OF HEARINGS CONDUCTED BY THIS SUBCOMMITTEE AND MEETINGS CONGRESSMAN LUNDINE AND I HELD WITH REPRESENTATIVES OF THE FINANCIAL INDUSTRY AND THE REGULATORY AGENCIES. ONE COMMON THREAD RAN THROUGH THE DISCUSSIONS AND HEARINGS: THE QUALITY OF THE EXAMINATION AND SUPERVISORY PROCESS MUST BE IMPROVED. THEY ALL ADDRESSED THE IMPORTANCE OF IMPROVING THE COMPENSATION AND TRAINING OF EXAMINERS IN ORDER TO REDUCE TURNOVER RATES AS A FUNDAMENTAL STEP, IN ORDER TO ENHANCE THE SAFETY AND SOUNDNESS OF THE SYSTEM. INDUSTRY REPRESENTATIVES STATED THAT THEY WOULD PAY MORE, UP FRONT, FOR BETTER EXAMS. THEY ALL REALIZE THAT THEY ARE PAYING FOR INADEQUATE EXAMINATION AND SUPERVISION THROUGH LOSSES TO THE INSURANCE FUNDS.

SINCE THESE INITIAL DISCUSSIONS, FURTHER EVENTS HAVE UNDERSCORED THE IMPORTANCE OF OUR EFFORTS. THE ADVENT OF GRAMM-RUDMAN HAS PREVENTED THE AGENCIES FROM HIRING SOME OF THE ADDITIONAL EXAMINERS THEY SO DESPERATELY NEED. THE INAPPROPRIATE APPLICATION OF APPORTIONMENT TO THESE AGENCIES SERIOUSLY THREATENS THEIR ABILITY TO EFFECTIVELY CARRY OUT THEIR FUNCTIONS. THEREFORE, OUR REVISED LEGISLATION CONTAINS REMEDIES FOR THESE SERIOUS PROBLEMS AND WILL ULTIMATELY PROVIDE US WITH A STRONGER SUPERVISORY PROCESS.

ONCE AGAIN, MR. CHAIRMAN, I COMMEND YOU FOR DEVOTING TWO DAYS OF HEARINGS TO THESE ISSUES, AS WELL AS TO THE ISSUE OF TRUTH IN SAVINGS. I LOOK FORWARD TO A THOROUGH DISCUSSION OF EXISTING PROBLEMS AND POTENTIAL SOLUTIONS WITH THE WITNESSES.