Federal financial agency watchdogs are so inundated by mandatory reviews of the nation's failed banks that they have been forced to abandon inquiries into money laundering, offshore banking operations and the house of cards that caused the financial crisis, the Treasury Department's inspector general told lawmakers Tuesday.
The inspectors general who oversee the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. used a hearing by the House Financial Services Oversight Subcommittee to ask Congress to loosen the requirements that trigger "material loss reviews" -- mandatory analyses of failed banks -- that have swamped their staffs.
Under current law, the IGs must conduct a full review of any failure by a financial institution in their jurisdiction that costs the Deposit Insurance Fund more than $25 million.
That $25 million threshold has forced the three agencies to launch at least 48 such reviews since January 2007, the IGs said. FDIC Inspector General Jon Rymer estimated that each review requires about 2,000 hours of staff work.
In a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., Rymer and his colleagues have recommended that Congress raise the threshold to between $300 million and $500 million.
Even a bump up to a $200 million trigger would substantially lighten their workloads, they told lawmakers.
In response to their pleas, Rep. Steve Driehaus, D-Ohio, is expected to introduce legislation soon to change the threshold, an aide to the lawmaker said after the hearing. The bill will likely include a threshold in the range of $200 million to $250 million, the aide said.
Without some tweaking of the threshold, the IGs warned at the hearing, their offices could go from being swamped to sinking deep under water.
The workload has caused the Treasury Department to nix or defer audits within its terrorist financing and anti-money-laundering units, said Treasury IG Eric Thorson.
His office would like to examine the role of the Office of Thrift Supervision's relationship with insurance giant American International Group, but it simply does not have the resources, Thorson said.
Rymer agreed, saying that if banks continue to fail at expected rates, FDIC will not have enough staff to complete all the mandatory bank failure reviews they are required to conduct. "Depending on the level of this growth, my office may not be able to keep up," he said.
Meanwhile, another government watchdog appealed Tuesday for public help in tracking economic stimulus spending and rooting out fraud and waste in the $787 billion recovery program.
Earl Devaney, chairman of the Recovery Accountability and Transparency Board, told the House Science Committee he was considering creating a citizens' hotline with which the public would be able to share with the board "potentially critical information" on suspected spending abuses.
"Citizen participation, I hope, will be my force multiplier," he told reporters later.
He also pledged to shield whistleblowers who gave the board tips about waste and abuse. "I have been pretty aggressive about protecting federal whistle-blowers ...," said Devaney, former Interior Department IG. "I do not intend to abandon that practice now."
Terry Kivlan contributed to this report.