Modernizing Financial Regulation.

Intro -- MODERNIZING FINANCIAL REGULATION -- MODERNIZING FINANCIAL REGULATION -- CONTENTS -- PREFACE -- FEDERAL FINANCIAL SERVICES REGULATORY CONSOLIDATION: AN OVERVIEW -- SUMMARY -- INTRODUCTION -- THE MAJOR FINANCIAL SERVICES REGULATORS -- SAFETY AND SOUNDNESS REGULATIONS -- BACKGROUND -- U.S. FUNCTIONAL AND COMPETITIVE REGULATORY STRUCTURE -- Regulatory Competition in Banking -- Regulatory Competition in Insurance -- Regulatory Competition in Securities -- Regulatory Competition in Commodity Futures and Options -- THE PROBLEM OF REGULATING IN THE CURRENT ENVIRONMENT -- PROPOSED CONSOLIDATION SOLUTIONS -- Banking -- Insurance -- Securities -- Consolidation in Other Countries -- Financial Services Authority of the United Kingdom -- The Financial Services Agency of Japan -- The Federal Financial Supervisory Authority (BaFin) -- U.S. REGULATORS ARE TRYING TO SPEAK WITH ONE VOICE -- SOME IMPLICATIONS -- End Notes -- FINANCIAL REGULATION: INDUSTRY TRENDS CONTINUE TO CHALLENGE THE FEDERAL REGULATORY STRUCTURE -- WHY GAO DID THIS STUDY -- WHAT GAO RECOMMENDS -- WHAT GAO FOUND -- ABBREVIATIONS -- RESULTS IN BRIEF -- BACKGROUND -- MEASURING THE COSTS AND BENEFITS OF REGULATION HAS BEEN DIFFICULT, COMPLICATING EFFORTS TO REDUCE REGULATORY BURDEN -- Regulators and the Financial Services Industry Face Challenges Measuring Regulatory Costs and Benefits -- Concerns Exist that Regulation Could Hinder Market Efficiency -- U.S. Regulators Have Reviewed Existing Regulations -- Forum Participants Shared Concerns Regarding Regulatory Burden -- We Have Recommended Improved Review of Regulations -- DEVELOPMENTS IN A DYNAMIC FINANCIAL INDUSTRY ENVIRONMENT POSE CHALLENGES TO THE FEDERAL FINANCIAL REGULATORY STRUCTURE -- Aspects of the Current Regulatory Structure Have Contributed to a Strong Financial System but also Create Challenges.

Key Trends Have Changed the Financial Services Industry -- Recent Legislative Changes Have Affected the Financial Services Industry -- Recent Industry Changes Demonstrate the Challenges Confronting Financial Regulators -- Consolidated Supervision of Holding Companies -- ILC Holding Company Regulation -- Basel II Implementation -- OCC Preemption and Charter Choice -- SEC and CFTC Joint Jurisdiction over Certain Products -- Regulators Have Often Collaborated to Respond to Regulatory Challenges but More Could be Done -- Accountability for Identifying and Responding to Risks that Span Financial Sectors Is Not Clearly Defined -- OPTIONS TO CHANGE THE FEDERAL FINANCIAL REGULATORY STRUCTURE -- Modernizing the Financial Regulatory System Remains a Challenge -- Some Lessons May Be Learned from the United Kingdom's FSA Model which Emphasizes a Principles-based Approach to Regulation -- Clear, Consistent Regulatory Goals Are Important Steps to Improve Regulatory Effectiveness -- Treasury Has Announced Plans to Consider Regulatory Structure Modernization -- APPENDIX I: PARTICIPANTS IN THE JUNE 11, 2007, COMPTROLLER GENERAL'S FORUM -- APPENDIX II: COMMENTS FROM THE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM -- APPENDIX III: COMMENTS FROM THE CHAIRMAN OF THE NATIONAL CREDIT UNION ADMINISTRATION -- Related GAO Products -- End Notes -- FINANCIAL REGULATION: A FRAMEWORK FOR CRAFTING AND ASSESSING PROPOSALS TO MODERNIZE THE OUTDATED U.S. FINANCIAL REGULATORY SYSTEM -- WHY GAO DID THIS STUDY -- WHAT GAO FOUND -- ABBREVIATIONS -- BACKGROUND -- TODAY'S FINANCIAL REGULATORY SYSTEM WAS BUILT OVER MORE THAN A CENTURY, LARGELY IN RESPONSE TO CRISES OR MARKET DEVELOPMENTS -- Banking -- Securities -- Thrifts and Credit Unions -- Futures -- Insurance -- Secondary Mortgage Markets -- Gramm-Leach-Bliley.

Accounting and Auditing -- Other Financial Institutions -- CHANGES IN FINANCIAL INSTITUTIONS AND THEIR PRODUCTS HAVE SIGNIFICANTLY CHALLENGED THE U.S. FINANCIAL REGULATORY SYSTEM -- Conglomeration and Increased Interconnectedness in Financial Markets Have Created Difficulties for a Regulatory System That Lacks a Systemwide Focus -- Existing Regulatory System Failed to Adequately Address Problems Associated with Less-Regulated Entities That Played Significant Roles in the U.S. Financial System -- Activities of Nonbank Mortgage Lenders Played a Significant Role in Mortgage Crisis but Were Not Adequately Addressed by Existing Regulatory System -- Activities of Hedge Funds Can Pose Systemic Risks not Recognized by Regulatory System -- Credit Rating Agency Activities Also Illustrate the Failure of the Regulatory System to Address Risks Posed by Less-Regulated Entities -- Regulatory System Failed to Identify Risks Associated with Special-Purpose Entities -- CREDIT RATINGS AND THE FINANCIAL CRISIS -- New and Complex Financial Products and Services Also Revealed Limitations in the Regulatory Structure -- New Complex Securitized Products Have Created Difficulties for Institutions and Regulators in Valuing and Assessing Their Risks -- Growth in OTC Derivatives Markets, Which Feature Complex Products That Are Not Regulated, Raised Regulator Concerns about Systemic Risk and Weak Market Infrastructure -- New Complex Products Have Also Created Challenges for Regulators in Ensuring Adequate Investor and Consumer Protection -- Increased Complexity and Other Factors Have Challenged Accounting Standard Setters and Regulators -- Globalization Will Further Challenge the Existing U.S. Regulatory System -- A FRAMEWORK FOR CRAFTING AND ASSESSING ALTERNATIVES FOR REFORMING THE U.S. FINANCIAL 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, a -- 8. Consistent financial oversight. -- 9. Minimal taxpayer exposure. -- COMMENTS FROM AGENCIES AND OTHER ORGANIZATIONS, AND OUR EVALUATION -- APPENDIX I: SCOPE AND METHODOLOGY -- APPENDIX II: AGENCIES AND OTHER ORGANIZATONS THAT REVIEWD THE DRAFT REPORT -- APPENDIX III: COMMENTS FROM THE AMERICAN BANKERS ASSOCIATION -- APPENDIX IV: COMMENTS FROM THE AMERICAN COUNCIL OF LIFE INSURERS -- APPENDIX V: COMMENTS FROM THE CONFERENCE OF STATE BANK SUPERVISORS -- APPENDIX VI: COMMENTS FROM CONSUMERS UNION -- APPENDIX VII: COMMENTS FROM THE CREDIT UNION NATIONAL ASSOCIATION -- APPENDIX VIII: COMMENTS FROM THE FEDERAL DEPOSIT INSURANCE CORPORATION -- APPENDIX IX: COMMENTS FROM THE MORTGAGE BANKERS ASSOCIATION -- APPENDIX X: COMMENTS FROM THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS -- APPENDIX XI: COMMENTS FROM THE CENTER FOR RESPONSIBLE LENDING, THE NATIONAL CONSUMER LAW CENTER, AND THE U.S. PIRG -- End Notes -- STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER GENERAL OF THE UNITED STATES, BEFORE THE CONGRESSIONAL OVERSIGHT PANEL ON FINANCIAL REGULATION -- SUMMARY -- TODAY'S FINANCIAL REGULATORY SYSTEM WAS BUILT OVER THE COURSE OF MORE THAN A CENTURY, LARGELY IN RESPONSE TO CRISES OR MARKET DEVELOPMENTS -- CHANGES IN FINANCIAL INSTITUTIONS AND THEIR PRODUCTS HAVE SIGNIFICANTLY CHALLENGED THE U.S. FINANCIAL REGULATORY SYSTEM -- A FRAMEWORK FOR CRAFTING AND ASSESSING ALTERNATIVES FOR REFORMING THE U.S. FINANCIAL 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, -- 8. Consistent financial oversight. -- APPENDIX I: AGENCIES AND OTHER ORGANIZATIONS THAT REVIEWED THE DRAFT REPORT -- Related GAO Products -- End Notes -- SPEECH BY TIMOTHY F. GEITHNER, PRESIDENT AND CEO, FEDERAL RESERVE BANK OF NEW YORK, AT THE ECONOMIC CLUB OF NEW YORK, JUNE 9, 2008 -- REDUCING SYSTEMIC RISK IN A DYNAMIC FINANCIAL SYSTEM -- Why Was the System so Fragile? -- FIRST REPAIR, THEN REFORM -- What Should Be Done to Reduce These Vulnerabilities? -- REGULATORY POLICY -- REGULATORY STRUCTURE -- CRISIS MANAGEMENT -- CONCLUSION -- CHAPTER SOURCES -- INDEX.

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