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U.S. watchdog probes financial regulatory structure
May 18, 2016 / 10:36 PM / a year ago

U.S. watchdog probes financial regulatory structure

WASHINGTON (Reuters) - A federal watchdog agency is examining whether financial regulators are doing enough to collaborate and share information to prevent another economic crisis, a senior agency official told Reuters on Wednesday.

The Managing Director (Financial Markets and Community Investment) of the U.S. Government Accountability Office Orice Williams Brown is interviewed at the Reuters Financial Regulation Summit in Washington, U.S. May 18, 2016. REUTERS/Gary Cameron

As part of its investigation, the U.S. Government Accountability Office is considering whether some regulators ought to be merged to function better, Orice Williams Brown, managing director of financial markets and community investment at the GAO, told the Reuters Financial Regulation Summit in Washington.

The GAO, a nonpartisan investigative arm of Congress, does not have subpoena or regulatory powers, but its studies can be influential.

“July will be, I think, six years out from Dodd-Frank and there are still real questions about the regulatory structure and if we have fully addressed some of the blind spots,” she said.

For instance, Brown noted that regulators like the Securities and Exchange Commission and the Commodity Futures Trading Commission have overlapping duties regulating certain markets while the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have overlapping duties with depository institutions. In some cases, an investment product can cut across multiple regulators’ jurisdictions, but is analyzed by each through a narrow lens, she said.

Multiple regulators overseeing the same thing can be beneficial if they act as backstops to one another and provide different viewpoints, Brown said. But it becomes a risk when they do not share information or take responsibility to act. In particular, the Financial Stability Oversight Council has a systemic risk committee whose members can be limited in the type of information they are able to share with others.

“That just raises real questions,” she said. “If there is something going on in some particular segment of the market, is that information then being shared broadly enough to know if it’s a more pervasive issue?”

Brown also noted that the Office of Financial Research and a special research division of the Federal Reserve are at times analyzing the same topic without appropriate coordination. And while the Office of Financial Research may spot serious systemic risks, it has no authority to act. Instead, it refers its findings to regulators in hopes they will prevent a calamity.

“It’s as if you get an email...and it’s been addressed to five people and everybody assumes that somebody else is going to respond,” she said.

The Managing Director (Financial Markets and Community Investment) of the U.S. Government Accountability Office Orice Williams Brown is interviewed at the Reuters Financial Regulation Summit in Washington, U.S. May 18, 2016. REUTERS/Gary Cameron

Separately, the GAO has expanded an investigation into whether the Federal Reserve has been too soft on Wall Street banks. The GAO has decided to also examine whether the FDIC and OCC have fallen victim to “regulatory capture,” a form of government failure, which will be released separately. Reuters first reported on the investigation in March.

UPCOMING REPORTS

The GAO’s investigative work focuses on how public funds are used. Some of its ongoing research projects are required by law, but many others come at the request of prominent lawmakers.

Brown detailed a wide range of topics the agency is investigating.

This summer, it expects to publish a report on regulatory stress tests of big banks, and another on how the government has used fines collected from banks related to the mortgage crisis. In the fall, it will release a follow-up investigation into the SEC’s personnel management practices, something it also examined in 2013.

Next year the GAO will release a report on a requirement that banks own stock of local Federal Reserve banks, which in turn pay dividends to owners. It is also investigating the structure of the U.S. housing finance system, including the federal government’s ongoing conservatorship of Fannie Mae and Freddie Mac.

Other reports will examine whether the Federal Reserve’s role in payments systems presents a conflict of interest, how the Office of Financial Research is using its resources, and the reduction of banking services along the Southwest border, Brown said. Reports will also examine the decision by regulators to limit the scope of derivatives rules, and a Fed regulation that limits transactions in certain savings and money-market accounts to six per month that is poorly understood by consumers, Brown added.

   

Follow Reuters Summits on Twitter @Reuters_Summits

Reporting by Lauren Tara LaCapra; Editing by Andrew Hay

Our Standards:The Thomson Reuters Trust Principles.
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