Modernizing financial regulation

Earlier this month the Government Accountability Office (GAO) issued a report on modernizing the U.S. financial regulatory system. GAO also presented testimony on its report.

GAO found that the current regulatory system "has not kept pace with major developments in financial markets and products," such as:

• Systemic risks posed by large and interconnected financial conglomerates that cross financial sectors of banking, securities, and insurance
• Activities of large and less-regulated market participants, such as nonbank mortgage lenders, hedge funds, and credit rating agencies
• New and more complex investment products
• Ensuring that accounting and audit standards appropriately respond to financial market developments
• Coordinating internationally with other regulators in the increasingly global aspects of financial markets

GAO offers a framework for a more effective regulatory system:

1. Clearly defined regulatory goals
2. Appropriately comprehensive
3. Systemwide focus
4. Flexible and adaptable
5. Efficient and effective
6. Consistent consumer and investor protection
7. Regulators provided with independence, prominence, authority, and accountability
8. Consistent financial oversight
9. Minimal taxpayer exposure

FINANCIAL REGULATION: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, GAO-09-216 (pdf, 107pp/2.1MB), Jan. 8, 2009

FINANCIAL REGULATION: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System, GAO-09-310T (pdf, 30pp/416kB), Jan. 14, 2009. Testimony before the Congressional Oversight Panel (COP).