GAO Criticizes Regulators' Use of Systemic Risk Exception

A GAO report has criticized the way in which the Treasury Department, Federal Reserve Board and Federal Deposit Insurance Corp. implemented the systemic risk exception to the Federal Deposit Insurance Act, which allowed the FDIC to provide emergency assistance without complying with the ordinary requirement that it act in the way that carries the least cost. According to the GAO, the FDIC and Fed proposed five such actions for Treasury Department approval in 2008. The Treasury approved three proposals but made no decision on the remaining two. The failure to approve or reject those two proposals could nonetheless have increased public confidence in the affected institutions and also increased moral hazard, but without triggering the statute's documentation and communication obligations, the GAO report asserted