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Cost Benefit Analysis Process for Rulemaking Summary

The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) has issued its report on the FDIC’s Cost Benefit Analysis Process for Rulemaking. 

Through the Banking Act of 1933, Congress provided the FDIC with the authority to promulgate rules to fulfill the goals and objectives of the Agency.  The Administrative Procedure Act defines a rule as the whole or part of an agency statement “designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency.”  Rulemaking is the “agency process for formulating, amending, or repealing a rule.”

Cost benefit analysis informs the agency and the public whether the benefits of a rule are likely to justify the costs, or determines which of various possible alternatives would be the most cost effective.

We found that the FDIC’s cost benefit analysis process was not consistent with widely recognized best practices that we identified, as noted below:

  • The FDIC had not established and documented a process to determine when and how to perform cost benefit analyses.  As a result, the FDIC’s process did not ensure the appropriate depth of analyses was performed; resulted in inconsistent analyses; and limited public awareness and transparency.  
  • The FDIC did not leverage the expertise of its Regulatory Analysis Section economists during initial rule development.    
  • The FDIC did not require the Chief Economist to review and concur on the cost benefit analyses performed, which is an important quality control. 
  • The FDIC was not always transparent in its disclosure of cost benefit analyses to the public.  The FDIC did not publish why a cost benefit analysis was or was not performed; the reason for the depth of analysis performed; the scope and methodology used; and the analysis performed.   
  • The FDIC did not perform cost benefit analyses after final rule issuance.  Absent such analyses, the FDIC may not identify duplicative, outdated, or overly burdensome rules in a timely manner and may not ensure that its rules are effective and have achieved their intended objectives/outcomes.

We made five recommendations designed to improve the FDIC’s cost benefit analysis process.  Management concurred with four recommendations and partially concurred with one recommendation.