FDICi NEWS RELEASE
FEDERAL DEPOSIT INSURANCE CORPORATION
FOR IMMEDIATE RELEASE
FDIC CHAIRMAN OUTLINES
CRACKDOWN ON FRAUD IN BANKING
PR-75-86 (5-27-86)
FDIC Chairman L. William Seidman today called for aggressive pursuit of
"those bankers who would abuse the public's trust by engaging in illegal
transactions." He proposed that detecting fraud in banking be a "primary
objective" of the examination process--not an incidental activity.
In a speech at The Southwestern Graduate School of Banking, Southern
Methodist University in Dallas, Mr. Seidman said the FDIC is preparing a list
of "red flags" which examiners will use in looking for evidence of
misbehavior. He also revealed the FDIC is consulting with a committee of the
American Institute of Certified Public Accountants on the fraud detection
responsibilities of independent CPAs.
Chairman Seidman said the FDIC and other banking supervisors recognize
that self-interest is "neither good nor bad," but merely a force to be
reckoned with. But he said the FDIC will aggressively seek out those bankers
who engage in illegal activity. He outlined three approaches for use by bank
supervisors in dealing with "self-interested" activities:
Fraudulent behavior should be ferreted out and punished.
Parties that engage in aggressive, risky, but legal behavior should be
made to bear the costs such risks impose.
Banks that seek out sound and appropriate profitable opportunities
should be able to do so with as little interference as possible.
Mr. Seidman noted that an FDIC regulation requiring banks to report
suspected crimes becomes effective this month. He said the FDIC has developed
a computer system to track criminal referrals and is committed to providing
prosecutors with the technical assistance necessary to ensure successful bank
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-8996
FEDERAL DEPOSIT INSURANCE CORPORATION
FOR IMMEDIATE RELEASE
FDIC CHAIRMAN OUTLINES
CRACKDOWN ON FRAUD IN BANKING
PR-75-86 (5-27-86)
FDIC Chairman L. William Seidman today called for aggressive pursuit of
"those bankers who would abuse the public's trust by engaging in illegal
transactions." He proposed that detecting fraud in banking be a "primary
objective" of the examination process--not an incidental activity.
In a speech at The Southwestern Graduate School of Banking, Southern
Methodist University in Dallas, Mr. Seidman said the FDIC is preparing a list
of "red flags" which examiners will use in looking for evidence of
misbehavior. He also revealed the FDIC is consulting with a committee of the
American Institute of Certified Public Accountants on the fraud detection
responsibilities of independent CPAs.
Chairman Seidman said the FDIC and other banking supervisors recognize
that self-interest is "neither good nor bad," but merely a force to be
reckoned with. But he said the FDIC will aggressively seek out those bankers
who engage in illegal activity. He outlined three approaches for use by bank
supervisors in dealing with "self-interested" activities:
Fraudulent behavior should be ferreted out and punished.
Parties that engage in aggressive, risky, but legal behavior should be
made to bear the costs such risks impose.
Banks that seek out sound and appropriate profitable opportunities
should be able to do so with as little interference as possible.
Mr. Seidman noted that an FDIC regulation requiring banks to report
suspected crimes becomes effective this month. He said the FDIC has developed
a computer system to track criminal referrals and is committed to providing
prosecutors with the technical assistance necessary to ensure successful bank
-more-
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-8996
-2-
fraud prosecutions. "The FDIC is committed to achieving an effective
anti-fraud capability," Mr. Seidman said.
The FDIC head noted that, while he favors deregulation, he believes banks
engaging in greater risk-taking should bear the costs such risks entail. He
suggested risk-related insurance premiums as one way to recognize those
costs. He also said a bank's risk profile should be considered when assessing
its capital adequacy. He cited increased public disclosure of information as
yet another way to use market forces to discipline excessive risk-taking. "We
hope to develop with other regulators consistent disclosure policies for all
banks," he said.
Mr. Seidman said banks should be encouraged to seek out profitable
opportunities that do not involve unwarranted risks. "Bank supervisors should
interfere as little as possible with such self-interested endeavors," he
said. "Government officials are not likely to be better than banks'
managements in shaping the direction taken by the banking industry."
###
fraud prosecutions. "The FDIC is committed to achieving an effective
anti-fraud capability," Mr. Seidman said.
The FDIC head noted that, while he favors deregulation, he believes banks
engaging in greater risk-taking should bear the costs such risks entail. He
suggested risk-related insurance premiums as one way to recognize those
costs. He also said a bank's risk profile should be considered when assessing
its capital adequacy. He cited increased public disclosure of information as
yet another way to use market forces to discipline excessive risk-taking. "We
hope to develop with other regulators consistent disclosure policies for all
banks," he said.
Mr. Seidman said banks should be encouraged to seek out profitable
opportunities that do not involve unwarranted risks. "Bank supervisors should
interfere as little as possible with such self-interested endeavors," he
said. "Government officials are not likely to be better than banks'
managements in shaping the direction taken by the banking industry."
###