WASHINGTON - A measure that would ease bank audit requirements should be dropped from regulatory relief legislation pending before Congress, lawmakers said.
During a hearing on the Daiwa Bank scandal, Rep. Marge Roukema said lawmakers should retain a requirement that external auditors attest to the adequacy of a bank's internal controls.
"Daiwa may necessitate revisiting a couple of provisions in our regulatory burden relief bill, particularly the provisions easing the audit cost requirements," the New Jersey Republican said.
Rep. Roukema, who chairs House Banking's financial institutions subcommittee, said the lack of these controls allowed Daiwa bond trader Toshihide Iguchi to lose $1.1 billion from unauthorized securities trades in 11 years.
"We cannot simply rely on our regulators to protect our financial markets," Rep. Roukema said.
House Banking approved the regulatory relief bill June 29, but it has not passed the full House yet.
In a related matter, the Federal Reserve Board warned that new Community Reinvestment Act rules will have to be rewritten unless lawmakers strip a provision from the regulatory relief bill that prevents regulators from imposing new reporting requirements on banks and thrifts.
Griffith L. Garwood, the Fed's director of consumer and community affairs, in a Dec. 1 memorandum to congressional staffers, called the provision a "poison pill to the reform effort."
The revised CRA rules include several reporting requirements to help examiners grade banks on their performance in serving low- and moderate- income communities.
At her subcommittee's hearing, Rep. Roukema said the General Accounting Office will investigate whether the 1991 Foreign Bank Supervision Enhancement Act is working.
The GAO also will review the adequacy of internal controls and audits used by foreign banks here, and it will look at how often U.S. regulators defer to a foreign bank's audits rather than conduct independent investigations.
Fed Chairman Alan Greenspan testified that the central bank may start requiring banks to conduct external audits in departments where regulators suspect trouble. The Fed also plans to step up examiner education regarding bank audit systems.
Comptroller of the Currency Eugene Ludwig discouraged lawmakers from getting involved.
"While unexpected losses are always possible, we do not believe there are significant legislative changes at this time that would make them less likely," he said.
But Rep. Bruce F. Vento, D-Minn., wasn't convinced.
"The system is inadequate for today and inadequate for tomorrow," he said.