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FDIC Examinations of Government-Guaranteed Loans

The Office of Inspector General (OIG) of the Federal Deposit Insurance Corporation (FDIC) issued its report on FDIC Examinations of Government-Guaranteed Loans.

Federal agencies administer several Government-guaranteed loan programs to assist individuals and businesses with, among other things, buying homes, financing agricultural production, financing businesses, and purchasing equipment.  FDIC-supervised banks participate in these programs, originating billions of dollars in Government-guaranteed loans.  These programs promote lending to rural and underserved communities and to borrowers with collateral weaknesses or that lack adequate credit history.  Without proper due diligence and supervision, Government-guaranteed loan programs can present substantial risks to banks.  These risks include but are not limited to operational risk, compliance risk, reputational risk, fraud risk, and strategic risk. 

Our Office conducted an evaluation to determine the effectiveness of the FDIC’s examinations in identifying and addressing risks related to Government-guaranteed loans for banks that participate in Government-guaranteed loan programs.  We determined that FDIC bank examinations were not always effective in identifying and addressing risks related to Government-guaranteed loans.  We found that the:

  • FDIC’s guidance did not adequately address risks present in Government-guaranteed loan programs;
  • FDIC could improve its supervision of bank activities in Government-guaranteed loan programs, including the Paycheck Protection Program;
  • FDIC’s guidance differed from that of other Federal bank regulators;
  • FDIC did not provide adequate training to examination personnel on Government-guaranteed lending programs;
  • FDIC did not maintain adequate data to identify, monitor, and research bank participation in Government-guaranteed loan programs; and
  • FDIC did not effectively share information externally and internally to enhance risk oversight of banks that participated in Government-guaranteed loan programs.

We also found that the FDIC’s examination guidance did not provide clear instructions on the retention of examination workpapers.

We made 19 recommendations to the FDIC to address the findings in our report.  The FDIC concurred or partially concurred with all of our recommendations and plans to complete corrective actions by March 31, 2024.