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Testimony: 

Before the Committee on Banking, Housing, and Urban Affairs, U.S. 
Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 3:00 p.m. EST: 
Wednesday, February 4, 2009: 

Financial Regulation: 

A Framework for Crafting and Assessing Proposals to Modernize the 
Outdated U.S. Financial Regulatory System: 

Statement of Gene L. Dodaro: 
Acting Comptroller General of the United States: 

GAO-09-349T: 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss our January 8, 2009, report 
that provides a framework for modernizing the outdated U.S. financial 
regulatory system.[Footnote 1] We prepared this work under the 
authority of the Comptroller General to help policymakers weigh various 
regulatory reform proposals and consider ways in which the current 
regulatory system could be made more effective and efficient. My 
statement today is based on our report, which (1) describes how 
regulation has evolved in banking, securities, thrifts, credit unions, 
futures, insurance, secondary mortgage markets and other important 
areas; (2) describes several key changes in financial markets and 
products in recent decades that have highlighted significant 
limitations and gaps in the existing regulatory system; and (3) 
presents an evaluation framework that can be used by Congress and 
others to shape potential regulatory reform efforts. On January 22, we 
released an update to our biennial High-Risk Series, which described 
high-risk areas in federal programs, including by focusing on the need 
for broad-based transformations to address major economy, efficiency, 
or effectiveness challenges. Based on recent economic events and our 
past work on financial regulatory reform, we added the need to 
modernize the outdated U.S. financial regulatory system as a new high- 
risk area this year.[Footnote 2] 

To do this work, we synthesized existing GAO work and other studies and 
met with representatives of financial regulatory agencies, industry 
associations, consumer advocacy organizations, and others. The work 
upon which the report is based was conducted in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. This work was conducted between April 
2008 and December 2008. 

The report was enhanced by input from representatives of 29 agencies 
and other organizations, including federal and state financial 
regulatory agencies, consumer advocacy groups, and financial service 
industry trade associations, who reviewed and commented on a draft of 
the report prior to its release. A list of organizations that reviewed 
the draft report is included at the end of my statement. In general, 
reviewers commented that the report represented an important and 
thorough review of the issues related to regulatory reform. 

Summary: 

The current U.S. financial regulatory system has relied on a fragmented 
and complex arrangement of federal and state regulators--put into place 
over the past 150 years--that has not kept pace with major developments 
in financial markets and products in recent decades. Today, almost a 
dozen federal regulatory agencies, numerous self-regulatory 
organizations, and hundreds of state financial regulatory agencies 
share responsibility for overseeing the financial services industry. As 
the nation finds itself in the midst of one of the worst financial 
crises ever, it has become apparent that the regulatory system is ill- 
suited to meet the nation's needs in the 21st century. 

Several key changes in financial markets and products in recent decades 
have highlighted significant limitations and gaps in the existing 
regulatory system. 

* First, regulators have struggled, and often failed, to mitigate the 
systemic risks posed by large and interconnected financial 
conglomerates and to ensure they adequately manage their risks. 

* Second, regulators have had to address problems in financial markets 
resulting from the activities of large and sometimes less-regulated 
market participants--such as nonbank mortgage lenders, hedge funds, and 
credit rating agencies--some of which play significant roles in today's 
financial markets. 

* Third, the increasing prevalence of new and more complex investment 
products has challenged regulators and investors, and consumers have 
faced difficulty understanding new and increasingly complex retail 
mortgage and credit products. 

* Fourth, standard setters for accounting and financial regulators have 
faced growing challenges in ensuring that accounting and audit 
standards appropriately respond to financial market developments, and 
in addressing challenges arising from the global convergence of 
accounting and auditing standards. 

* Finally, as financial markets have become increasingly global, the 
current fragmented U.S. regulatory structure has complicated some 
efforts to coordinate internationally with other regulators. 

These significant developments have outpaced a fragmented and outdated 
regulatory structure, and, as a result, significant reforms to the U.S. 
regulatory system are critically and urgently needed. The current 
system has significant weaknesses that, if not addressed, will continue 
to expose the nation's financial system to serious risks. Our report 
offers a framework for crafting and evaluating regulatory reform 
proposals consisting of nine characteristics that should be reflected 
in any new regulatory system. By applying the elements of the 
framework, the relative strengths and weaknesses of any reform proposal 
should be better revealed, and policymakers should be able to focus on 
identifying trade-offs and balancing competing goals. Similarly, the 
framework could be used to craft proposals, or to identify aspects to 
be added to existing proposals to make them more effective and 
appropriate for addressing the limitations of the current system. 

Table 1: Framework for Crafting and Evaluating Regulatory Reform 
Proposals: 

Characteristic: Clearly defined regulatory goals; 
Description: Goals should be clearly articulated and relevant, so that 
regulators can effectively carry out their missions and be held 
accountable. Key issues include considering the benefits of re- 
examining the goals of financial regulation to gain needed consensus 
and making explicit a set of updated comprehensive and cohesive goals 
that reflect today's environment. 

Characteristic: Appropriately comprehensive; 
Description: Financial regulations should cover all activities that 
pose risks or are otherwise important to meeting regulatory goals and 
should ensure that appropriate determinations are made about how 
extensive such regulations should be, considering that some activities 
may require less regulation than others. Key issues include identifying 
risk-based criteria, such as a product's or institution's potential to 
create systemic problems, for determining the appropriate level of 
oversight for financial activities and institutions, including closing 
gaps that contributed to the current crisis. 

Characteristic: Systemwide focus; 
Description: Mechanisms should be included for identifying, monitoring, 
and managing risks to the financial system regardless of the source of 
the risk. Given that no regulator is currently tasked with this, key 
issues include determining how to effectively monitor market 
developments to identify potential risks; the degree, if any, to which 
regulatory intervention might be required; and who should hold such 
responsibilities. 

Characteristic: Flexible and adaptable; 
Description: A regulatory system that is flexible and forward looking 
allows regulators to readily adapt to market innovations and changes. 
Key issues include identifying and acting on emerging risks in a timely 
way without hindering innovation. 

Characteristic: Efficient and effective; 
Description: Effective and efficient oversight should be developed, 
including eliminating overlapping federal regulatory missions where 
appropriate, and minimizing regulatory burden without sacrificing 
effective oversight. Any changes to the system should be continually 
focused on improving the effectiveness of the financial regulatory 
system. Key issues include determining opportunities for consolidation 
given the large number of overlapping participants now, identifying the 
appropriate role of states and self-regulation, and ensuring a smooth 
transition to any new system. 

Characteristic: Consistent consumer and investor protection; 
Description: Consumer and investor protection should be included as 
part of the regulatory mission to ensure that market participants 
receive consistent, useful information, as well as legal protections 
for similar financial products and services, including disclosures, 
sales practice standards, and suitability requirements. Key issues 
include determining what amount, if any, of consolidation of 
responsibility may be necessary to streamline consumer protection 
activities across the financial services industry. 

Characteristic: Regulators provided with independence, prominence, 
authority, and accountability; 
Description: Regulators should have independence from inappropriate 
influence, as well as prominence and authority to carry out and enforce 
statutory missions, and be clearly accountable for meeting regulatory 
goals. With regulators with varying levels of prominence and funding 
schemes now, key issues include how to appropriately structure and fund 
agencies to ensure that each one's structure sufficiently achieves 
these characteristics. 

Characteristic: Consistent financial oversight; 
Description: Similar institutions, products, risks, and services should 
be subject to consistent regulation, oversight, and transparency, which 
should help minimize negative competitive outcomes while harmonizing 
oversight, both within the United States and internationally. Key 
issues include identifying activities that pose similar risks, and 
streamlining regulatory activities to achieve consistency. 

Characteristic: Minimal taxpayer exposure; 
Description: A regulatory system should foster financial markets that 
are resilient enough to absorb failures and thereby limit the need for 
federal intervention and limit taxpayers' exposure to financial risk. 
Key issues include identifying safeguards to prevent systemic crises 
and minimizing moral hazard. 

Source: GAO. 

[End of table] 

As the administration and Congress continue to take actions to address 
the immediate financial crisis, determining how to create a regulatory 
system that reflects new market realities is a key step to reducing the 
likelihood that the United States will experience another financial 
crisis similar to the current one. 

Today's Financial Regulatory System Was Built over the Course of More 
Than a Century, Largely in Response to Crises or Market Developments: 

As a result of 150 years of changes in financial regulation in the 
United States, the regulatory system has become complex and fragmented. 
Today, responsibilities for overseeing the financial services industry 
are shared among almost a dozen federal banking, securities, futures, 
and other regulatory agencies, numerous self-regulatory organizations, 
and hundreds of state financial regulatory agencies. In particular, 
five federal agencies--including the Federal Deposit Insurance 
Corporation, the Federal Reserve, the Office of the Comptroller of the 
Currency, the Office of Thrift Supervision, and the National Credit 
Union Administration--and multiple state agencies oversee depository 
institutions. Securities activities are overseen by the Securities and 
Exchange Commission and state government entities, as well as by 
private sector organizations performing self-regulatory functions. 
Futures trading is overseen by the Commodity Futures Trading Commission 
and also by industry self-regulatory organizations. Insurance 
activities are primarily regulated at the state level with little 
federal involvement. Other federal regulators also play important roles 
in the financial regulatory system, such as the Public Company 
Accounting Oversight Board, which oversees the activities of public 
accounting firms, and the Federal Trade Commission, which acts as the 
primary federal agency responsible for enforcing compliance with 
federal consumer protection laws for financial institutions, such as 
finance companies, which are not overseen by another financial 
regulator. 

Much of this structure has developed as the result of statutory and 
regulatory changes that were often implemented in response to financial 
crises or significant developments in the financial services sector. 
For example, the Federal Reserve System was created in 1913 in response 
to financial panics and instability around the turn of the century, and 
much of the remaining structure for bank and securities regulation was 
created as the result of the Great Depression turmoil of the 1920s and 
1930s. Changes in the types of financial activities permitted for 
depository institutions and their affiliates have also shaped the 
financial regulatory system over time. For example, under the Glass- 
Steagall provisions of the Banking Act of 1933, financial institutions 
were prohibited from simultaneously offering commercial and investment 
banking services, but with the passage of the Gramm-Leach-Bliley Act of 
1999 (GLBA), Congress permitted financial institutions to fully engage 
in both types of activities. 

Changes in Financial Institutions and Their Products Have Significantly 
Challenged the U.S. Financial Regulatory System: 

Several key developments in financial markets and products in the past 
few decades have significantly challenged the existing financial 
regulatory structure. (See figure 1.) First, the last 30 years have 
seen waves of mergers among financial institutions within and across 
sectors, such that the United States, while still having large numbers 
of financial institutions, also has several very large globally active 
financial conglomerates that engage in a wide range of activities that 
have become increasingly interconnected. Regulators have struggled, and 
often failed, to mitigate the systemic risks posed by these 
conglomerates, and to ensure they adequately manage their risks. The 
portion of firms that conduct activities across the financial sectors 
of banking, securities, and insurance increased significantly in recent 
years, but none of the regulators is tasked with assessing the risks 
posed across the entire financial system. 

A second dramatic development in U.S. financial markets in recent 
decades has been the increasingly critical roles played by less- 
regulated entities. In the past, consumers of financial products 
generally dealt with entities such as banks, broker-dealers, and 
insurance companies that were regulated by a federal or state 
regulator. However, in the last few decades, various entities--nonbank 
lenders, hedge funds, credit rating agencies, and special-purpose 
investment entities--that are not always subject to full regulation by 
such authorities have become important participants in our financial 
services markets. These unregulated or less regulated entities can 
sometimes provide substantial benefits by supplying information or 
allowing financial institutions to better meet demands of consumers, 
investors or shareholders, but pose challenges to regulators that do 
not fully or cannot oversee their activities. For example, significant 
participation in the subprime mortgage market by generally less- 
regulated nonbank lenders contributed to a dramatic loosening in 
underwriting standards leading up to the current financial crisis. 

A third development that has revealed limitations in the current 
regulatory structure has been the proliferation of more complex 
financial products. In particular, the increasing prevalence of new and 
more complex investment products has challenged regulators and 
investors, and consumers have faced difficulty understanding new and 
increasingly complex retail mortgage and credit products. Regulators 
failed to adequately oversee the sale of mortgage products that posed 
risks to consumers and the stability of the financial system. 

Fourth, standard setters for accounting and financial regulators have 
faced growing challenges in ensuring that accounting and audit 
standards appropriately respond to financial market developments, and 
in addressing challenges arising from the global convergence of 
accounting and auditing standards. 

Finally, with the increasingly global aspects of financial markets, the 
current fragmented U.S. regulatory structure has complicated some 
efforts to coordinate internationally with other regulators. For 
example, the current system has complicated the ability of financial 
regulators to convey a single U.S. position in international 
discussions, such the Basel Accords process for developing 
international capital standards, and international officials have also 
indicated that the lack of a single point of contact on, for example, 
insurance issues has complicated regulatory decision making. 

Figure 1: Key Developments and Resulting Challenges That Have Hindered 
the Effectiveness of the Financial Regulatory System: 

[Refer to PDF for image] 

This figure is an illustration of key developments and resulting 
challenges that have hindered the effectiveness of the Financial 
Regulatory System, as follows: 

Developments in financial markets and products: Financial market size, 
complexity, interactions; Emergence of large, complex, globally active, 
interconnected financial conglomerates; 
Examples of how developments have challenged the regulatory system: 
* Regulators sometimes lack sufficient authority, tools, or 
capabilities to oversee and mitigate risks. 
* Identifying, preventing, mitigating, and resolving systemic crises 
has become more difficult. 

Developments in financial markets and products: Less-regulated entities 
have come to play increasingly critical roles in financial system; 
Examples of how developments have challenged the regulatory system: 
* Nonbank lenders and a new private-label securitization market played 
significant roles in the subprime mortgage crisis that led to broader 
market turmoil. 
* Activities of hedge funds have posed systemic risks. 
* Over reliance on credit ratings of mortgage-backed products 
contributed to the recent turmoil in financial markets. 
* Financial institutions’ use of off-balance sheet entities led to 
ineffective risk disclosure and exacerbated recent market instability. 

Developments in financial markets and products: New and complex 
products that pose challenges to financial stability and investor and 
consumer understanding of risks.
Examples of how developments have challenged the regulatory system: 
* Complex structured finance products have made it difficult for 
institutions and their regulators to manage associated risks. 
* Growth in complex and less-regulated over-the-counter derivatives 
markets have created systemic risks and revealed market infrastructure 
weaknesses. 
* Investors have faced difficulty understanding complex investment 
products, either because they failed to seek out necessary information 
or were misled by improper sales practices. 
* Consumers have faced difficulty understanding mortgages and credit 
cards with new and increasingly complicated features, due in part to 
limitations in consumer disclosures and financial literacy efforts. 
* Accounting and auditing entities have faced challenges in trying to 
ensure that accounting and financial reporting requirements 
appropriately meet the needs of investors and other financial market 
participants. 

Developments in financial markets and products: Financial markets have 
become increasingly global in nature, and regulators have had to 
coordinate their efforts internationally. 
Examples of how developments have challenged the regulatory system: 
* Standard setters and regulators also face new challenges in dealing 
with global convergence of accounting and auditing standards. 
* Fragmented U.S. regulatory structure has complicated some efforts to 
coordinate internationally with other regulators, such as negotiations 
on Basel II and certain insurance matters. 

Sources: GAO (analysis); Art Explosion (images). 

[End of figure] 

A Framework for Crafting and Assessing Alternatives for Reforming the 
U.S. Financial Regulatory System: 

As a result of significant market developments in recent decades that 
have outpaced a fragmented and outdated regulatory structure, 
significant reforms to the U.S. regulatory system are critically and 
urgently needed. The current system has important weaknesses that, if 
not addressed, will continue to expose the nation's financial system to 
serious risks. As early as 1994, we identified the need to examine the 
federal financial regulatory structure, including the need to address 
the risks from new unregulated products.[Footnote 3] Since then, we 
have described various options for Congress to consider, each of which 
provides potential improvements, as well as some risks and potential 
costs.[Footnote 4] Our report offers a framework for crafting and 
evaluating regulatory reform proposals; it consists of the following 
nine characteristics that should be reflected in any new regulatory 
system. By applying the elements of this framework, the relative 
strengths and weaknesses of any reform proposal should be better 
revealed, and policymakers should be able to focus on identifying trade-
offs and balancing competing goals. Similarly, the framework could be 
used to craft proposals, or to identify aspects to be added to existing 
proposals to make them more effective and appropriate for addressing 
the limitations of the current system. 

1. Clearly defined regulatory goals. A regulatory system should have 
goals that are clearly articulated and relevant, so that regulators can 
effectively conduct activities to implement their missions. 

A critical first step to modernizing the regulatory system and 
enhancing its ability to meet the challenges of a dynamic financial 
services industry is to clearly define regulatory goals and objectives. 
In the background of our report, we identified four broad goals of 
financial regulation that regulators have generally sought to achieve. 
These include ensuring adequate consumer protections, ensuring the 
integrity and fairness of markets, monitoring the safety and soundness 
of institutions, and acting to ensure the stability of the overall 
financial system. However, these goals are not always explicitly set in 
the federal statutes and regulations that govern these regulators. 
Having specific goals clearly articulated in legislation could serve to 
better focus regulators on achieving their missions with greater 
certainty and purpose, and provide continuity over time. 

Given some of the key changes in financial markets discussed in our 
report--particularly the increased interconnectedness of institutions, 
the increased complexity of products, and the increasingly global 
nature of financial markets--Congress should consider the benefits that 
may result from re-examining the goals of financial regulation and 
making explicit a set of comprehensive and cohesive goals that reflect 
today's environment. For example, it may be beneficial to have a 
clearer focus on ensuring that products are not sold with unsuitable, 
unfair, deceptive, or abusive features; that systemic risks and the 
stability of the overall financial system are specifically addressed; 
or that U.S. firms are competitive in a global environment. This may be 
especially important given the history of financial regulation and the 
ad hoc approach through which the existing goals have been established. 

We found varying views about the goals of regulation and how they 
should be prioritized. For example, representatives of some regulatory 
agencies and industry groups emphasized the importance of creating a 
competitive financial system, whereas members of one consumer advocacy 
group noted that reforms should focus on improving regulatory 
effectiveness rather than addressing concerns about market 
competitiveness. In addition, as the Federal Reserve notes, financial 
regulatory goals often will prove interdependent and at other times may 
conflict. 

Revisiting the goals of financial regulation would also help ensure 
that all involved entities--legislators, regulators, institutions, and 
consumers--are able to work jointly to meet the intended goals of 
financial regulation. Such goals and objectives could help establish 
agency priorities and define responsibility and accountability for 
identifying risks, including those that cross markets and industries. 
Policymakers should also carefully define jurisdictional lines and 
weigh the advantages and disadvantages of having overlapping 
authorities. While ensuring that the primary goals of financial 
regulation--including system soundness, market integrity, and consumer 
protection--are better articulated for regulators, policymakers will 
also have to ensure that regulation is balanced with other national 
goals, including facilitating capital raising, innovation, and other 
benefits that foster long-term growth, stability, and welfare of the 
United States. 

Once these goals are agreed upon, policymakers will need to determine 
the extent to which goals need to be clarified and specified through 
rules and requirements, or whether to avoid such specificity and 
provide regulators with greater flexibility in interpreting such goals. 
Some reform proposals suggest "principles-based regulation" in which 
regulators apply broad-based regulatory principles on a case-by-case 
basis. Such an approach offers the potential advantage of allowing 
regulators to better adapt to changing market developments. Proponents 
also note that such an approach would prevent institutions in a more 
rules-based system from complying with the exact letter of the law 
while still engaging in unsound or otherwise undesirable financial 
activities. However, such an approach has potential limitations. 
Opponents note that regulators may face challenges to implement such a 
subjective set of principles. A lack of clear rules about activities 
could lead to litigation if financial institutions and consumers alike 
disagree with how regulators interpreted goals. Opponents of principles-
based regulation note that industry participants who support such an 
approach have also in many cases advocated for bright-line standards 
and increased clarity in regulation, which may be counter to a 
principles-based system. The most effective approach may involve both a 
set of broad underlying principles and some clear technical rules 
prohibiting specific activities that have been identified as 
problematic. 

Key issues to be addressed: 

* Clarify and update the goals of financial regulation and provide 
sufficient information on how potentially conflicting goals might be 
prioritized. 

* Determine the appropriate balance of broad principles and specific 
rules that will result in the most effective and flexible 
implementation of regulatory goals. 

2. Appropriately comprehensive. A regulatory system should ensure that 
financial institutions and activities are regulated in a way that 
ensures regulatory goals are fully met. As such, activities that pose 
risks to consumer protection, financial stability, or other goals 
should be comprehensively regulated, while recognizing that not all 
activities will require the same level of regulation. 

A financial regulatory system should effectively meet the goals of 
financial regulation, as articulated as part of this process, in a way 
that is appropriately comprehensive. In doing so, policymakers may want 
to consider how to ensure that both the breadth and depth of regulation 
are appropriate and adequate. That is, policymakers and regulators 
should consider how to make determinations about which activities and 
products, both new and existing, require some aspect of regulatory 
involvement to meet regulatory goals, and then make determinations 
about how extensive such regulation should be. As we noted in our 
report, gaps in the current level of federal oversight of mortgage 
lenders, credit rating agencies, and certain complex financial products 
such as CDOs and credit default swaps likely have contributed to the 
current crisis. Congress and regulators may also want to revisit the 
extent of regulation for entities such as banks that have traditionally 
fallen within full federal oversight but for which existing regulatory 
efforts, such as oversight related to risk management and lending 
standards, have been proven in some cases inadequate by recent events. 
However, overly restrictive regulation can stifle the financial 
sectors' ability to innovate and stimulate capital formation and 
economic growth. Regulators have struggled to balance these competing 
objectives, and the current crisis appears to reveal that the proper 
balance was not in place in the regulatory system to date. 

Key issues to be addressed: 

* Identify risk-based criteria, such as a product's or institution's 
potential to harm consumers or create systemic problems, for 
determining the appropriate level of oversight for financial activities 
and institutions. 

* Identify ways that regulation can provide protection but avoid 
hampering innovation, capital formation, and economic growth. 

3. Systemwide focus. A regulatory system should include a mechanism for 
identifying, monitoring, and managing risks to the financial system 
regardless of the source of the risk or the institutions in which it is 
created. 

A regulatory system should focus on risks to the financial system, not 
just institutions. As noted in our report, with multiple regulators 
primarily responsible for individual institutions or markets, none of 
the financial regulators is tasked with assessing the risks posed 
across the entire financial system by a few institutions or by the 
collective activities of the industry. The collective activities of a 
number of entities--including mortgage brokers, real estate 
professionals, lenders, borrowers, securities underwriters, investors, 
rating agencies and others--likely all contributed to the recent market 
crisis, but no one regulator had the necessary scope of oversight to 
identify the risks to the broader financial system. Similarly, once 
firms began to fail and the full extent of the financial crisis began 
to become clear, no formal mechanism existed to monitor market trends 
and potentially stop or help mitigate the fallout from these events. 

Having a single entity responsible for assessing threats to the overall 
financial system could prevent some of the crises that we have seen in 
the past. For example, in its Blueprint for a Modernized Financial 
Regulatory Structure, Treasury proposed expanding the responsibilities 
of the Federal Reserve to create a "market stability regulator" that 
would have broad authority to gather and disclose appropriate 
information, collaborate with other regulators on rulemaking, and take 
corrective action as necessary in the interest of overall financial 
market stability. Such a regulator could assess the systemic risks that 
arise at financial institutions, within specific financial sectors, 
across the nation, and globally. However, policymakers should consider 
that a potential disadvantage of providing the agency with such broad 
responsibility for overseeing nonbank entities could be that it may 
imply an official government support or endorsement, such as a 
government guarantee, of such activities, and thus encourage greater 
risk taking by these financial institutions and investors. 

Regardless of whether a new regulator is created, all regulators under 
a new system should consider how their activities could better identify 
and address systemic risks posed by their institutions. As the Federal 
Reserve Chairman has noted, regulation and supervision of financial 
institutions is a critical tool for limiting systemic risk. This will 
require broadening the focus from individual safety and soundness of 
institutions to a systemwide oversight approach that includes potential 
systemic risks and weaknesses. 

A systemwide focus should also increase attention on how the incentives 
and constraints created by regulations affects risk taking throughout 
the business cycle, and what actions regulators can take to anticipate 
and mitigate such risks. However, as the Federal Reserve Chairman has 
noted, the more comprehensive the approach, the more technically 
demanding and costly it would be for regulators and affected 
institutions. 

Key issues to be addressed: 

* Identify approaches to broaden the focus of individual regulators or 
establish new regulatory mechanisms for identifying and acting on 
systemic risks. 

* Determine what additional authorities a regulator or regulators 
should have to monitor and act to reduce systemic risks. 

4. Flexible and adaptable. A regulatory system should be adaptable and 
forward-looking such that regulators can readily adapt to market 
innovations and changes and include a mechanism for evaluating 
potential new risks to the system. 

A regulatory system should be designed such that regulators can readily 
adapt to market innovations and changes and include a formal mechanism 
for evaluating the full potential range of risks of new products and 
services to the system, market participants, and customers. An 
effective system could include a mechanism for monitoring market 
developments--such as broad market changes that introduce systemic 
risk, or new products and services that may pose more confined risks to 
particular market segments--to determine the degree, if any, to which 
regulatory intervention might be required. The rise of a very large 
market for credit derivatives, while providing benefits to users, also 
created exposures that warranted actions by regulators to rescue large 
individual participants in this market. While efforts are under way to 
create risk-reducing clearing mechanisms for this market, a more 
adaptable and responsive regulatory system might have recognized this 
need earlier and addressed it sooner. Some industry representatives 
have suggested that principles-based regulation would provide such a 
mechanism. Designing a system to be flexible and proactive also 
involves determining whether Congress, regulators, or both should make 
such determinations, and how such an approach should be clarified in 
laws or regulations. 

Important questions also exist about the extent to which financial 
regulators should actively monitor and, where necessary, approve new 
financial products and services as they are developed to ensure the 
least harm from inappropriate products. Some individuals commenting on 
this framework, including industry representatives, noted that limiting 
government intervention in new financial activities until it has become 
clear that a particular activity or market poses a significant risk and 
therefore warrants intervention may be more appropriate. As with other 
key policy questions, this may be answered with a combination of both 
approaches, recognizing that a product approval approach may be 
appropriate for some innovations with greater potential risk, while 
other activities may warrant a more reactive approach. 

Key issues to be addressed: 

* Determine how to effectively monitor market developments to identify 
potential risks; the degree, if any, to which regulatory intervention 
might be required; and who should hold such a responsibility. 

* Consider how to strike the right balance between overseeing new 
products as they come onto the market to take action as needed to 
protect consumers and investors, without unnecessarily hindering 
innovation. 

5. Efficient and effective. A regulatory system should provide 
efficient oversight of financial services by eliminating overlapping 
federal regulatory missions, where appropriate, and minimizing 
regulatory burden while effectively achieving the goals of regulation. 

A regulatory system should provide for the efficient and effective 
oversight of financial services. Accomplishing this in a regulatory 
system involves many considerations. First, an efficient regulatory 
system is designed to accomplish its regulatory goals using the least 
amount of public resources. In this sense, policymakers must consider 
the number, organization, and responsibilities of each agency, and 
eliminate undesirable overlap in agency activities and 
responsibilities. Determining what is undesirable overlap is a 
difficult decision in itself. Under the current U.S. system, financial 
institutions often have several options for how to operate their 
business and who will be their regulator. For example, a new or 
existing depository institution can choose among several charter 
options. Having multiple regulators performing similar functions does 
allow for these agencies to potentially develop alternative or 
innovative approaches to regulation separately, with the approach 
working best becoming known over time. Such proven approaches can then 
be adopted by the other agencies. On the other hand, this could lead to 
regulatory arbitrage, in which institutions take advantage of 
variations in how agencies implement regulatory responsibilities in 
order to be subject to less scrutiny. Both situations have occurred 
under our current structure. 

With that said, recent events clearly have shown that the fragmented 
U.S. regulatory structure contributed to failures by the existing 
regulators to adequately protect consumers and ensure financial 
stability. As we note in our report, efforts by regulators to respond 
to the increased risks associated with new mortgage products were 
sometimes slowed in part because of the need for five federal 
regulators to coordinate their response. The Chairman of the Federal 
Reserve has similarly noted that the different regulatory and 
supervisory regimes for lending institutions and mortgage brokers made 
monitoring such institutions difficult for both regulators and 
investors. Similarly, we noted in our report that the current 
fragmented U.S. regulatory structure has complicated some efforts to 
coordinate internationally with other regulators. 

One first step to addressing such problems is to seriously consider the 
need to consolidate depository institution oversight among fewer 
agencies. Since 1996, we have been recommending that the number of 
federal agencies with primary responsibilities for bank oversight be 
reduced.[Footnote 5] Such a move would result in a system that was more 
efficient and improve consistency in regulation, another important 
characteristic of an effective regulatory system. In addition, Congress 
could consider the advantages and disadvantages of providing a federal 
charter option for insurance and creating a federal insurance 
regulatory entity. We have not studied the issue of an optional federal 
charter for insurers, but have through the years noted difficulties 
with efforts to harmonize insurance regulation across states through 
the NAIC-based structure. The establishment of a federal insurance 
charter and regulator could help alleviate some of these challenges, 
but such an approach could also have unintended consequences for state 
regulatory bodies and for insurance firms as well. 

Also, given the challenges associated with increasingly complex 
investment and retail products as discussed earlier, policymakers will 
need to consider how best to align agency responsibilities to better 
ensure that consumers and investors are provided with clear, concise, 
and effective disclosures for all products. 

Organizing agencies around regulatory goals as opposed to the existing 
sector-based regulation may be one way to improve the effectiveness of 
the system, especially given some of the market developments discussed 
earlier. Whatever the approach, policymakers should seek to minimize 
conflict in regulatory goals across regulators, or provide for 
efficient mechanisms to coordinate in cases where goals inevitably 
overlap. For example, in some cases, the safety and soundness of an 
individual institution may have implications for systemic risk, or 
addressing an unfair or deceptive act or practice at a financial 
institution may have implications on the institution's safety and 
soundness by increasing reputational risk. If a regulatory system 
assigns these goals to different regulators, it will be important to 
establish mechanisms for them to coordinate. 

Proposals to consolidate regulatory agencies for the purpose of 
promoting efficiency should also take into account any potential trade- 
offs related to effectiveness. For example, to the extent that 
policymakers see value in the ability of financial institutions to 
choose their regulator, consolidating certain agencies may reduce such 
benefits. Similarly, some individuals have commented that the current 
system of multiple regulators has led to the development of expertise 
among agency staff in particular areas of financial market activities 
that might be threatened if the system were to be consolidated. 
Finally, policymakers may want to ensure that any transition from the 
current financial system to a new structure should minimize as best as 
possible any disruption to the operation of financial markets or risks 
to the government, especially given the current challenges faced in 
today's markets and broader economy. 

A financial system should also be efficient by minimizing the burden on 
regulated entities to the extent possible while still achieving 
regulatory goals. Under our current system, many financial 
institutions, and especially large institutions that offer services 
that cross sectors, are subject to supervision by multiple regulators. 
While steps toward consolidated supervision and designating primary 
supervisors have helped alleviate some of the burden, industry 
representatives note that many institutions face significant costs as a 
result of the existing financial regulatory system that could be 
lessened. Such costs, imposed in an effort to meet certain regulatory 
goals such as safety and soundness and consumer protection, can run 
counter to other goals of a financial system by stifling innovation and 
competitiveness. In addressing this concern, it is also important to 
consider the potential benefits that might result in some cases from 
having multiple regulators overseeing an institution. For example, 
representatives of state banking and other institution regulators, and 
consumer advocacy organizations, note that concurrent jurisdiction-- 
between two federal regulators or a federal and state regulator--can 
provide needed checks and balances against individual financial 
regulators who have not always reacted appropriately and in a timely 
way to address problems at institutions. They also note that states may 
move more quickly and more flexibly to respond to activities causing 
harm to consumers. Some types of concurrent jurisdiction, such as 
enforcement authority, may be less burdensome to institutions than 
others, such as ongoing supervision and examination. 

Key issues to be addressed: 

* Consider the appropriate role of the states in a financial regulatory 
system and how federal and state roles can be better harmonized. 

* Determine and evaluate the advantages and disadvantages of having 
multiple regulators, including nongovernmental entities such as SROs, 
share responsibilities for regulatory oversight. 

* Identify ways that the U.S. regulatory system can be made more 
efficient, either through consolidating agencies with similar roles or 
through minimizing unnecessary regulatory burden. 

* Consider carefully how any changes to the financial regulatory system 
may negatively impact financial market operations and the broader 
economy, and take steps to minimize such consequences. 

6. Consistent consumer and investor protection. A regulatory system 
should include consumer and investor protection as part of the 
regulatory mission to ensure that market participants receive 
consistent, useful information, as well as legal protections for 
similar financial products and services, including disclosures, sales 
practice standards, and suitability requirements. 

A regulatory system should be designed to provide high-quality, 
effective, and consistent protection for consumers and investors in 
similar situations. In doing so, it is important to recognize important 
distinctions between retail consumers and more sophisticated consumers 
such as institutional investors, where appropriate considering the 
context of the situation. Different disclosures and regulatory 
protections may be necessary for these different groups. Consumer 
protection should be viewed from the perspective of the consumer rather 
than through the various and sometimes divergent perspectives of the 
multitude of federal regulators that currently have responsibilities in 
this area. 

As discussed in our report, many consumers that received loans in the 
last few years did not understand the risks associated with taking out 
their loans, especially in the event that housing prices would not 
continue to increase at the rate they had in recent years. In addition, 
increasing evidence exists that many Americans are lacking in financial 
literacy, and the expansion of new and more complex products will 
continue to create challenges in this area. Furthermore, regulators 
with existing authority to better protect consumers did not always 
exercise that authority effectively. In considering a new regulatory 
system, policymakers should consider the significant lapses in our 
regulatory system's focus on consumer protection and ensure that such a 
focus is prioritized in any reform efforts. For example, policymakers 
should identify ways to improve upon the existing, largely fragmented, 
system of regulators that must coordinate to act in these areas. This 
should include serious consideration of whether to consolidate 
regulatory responsibilities to streamline and improve the effectiveness 
of consumer protection efforts. Another way that some market observers 
have argued that consumer protections could be enhanced and harmonized 
across products is to extend suitability requirements--which require 
securities brokers making recommendations to customers to have 
reasonable grounds for believing that the recommendation is suitable 
for the customer--to mortgage and other products. Additional 
consideration could also be given to determining whether certain 
products are simply too complex to be well understood and make 
judgments about limiting or curtailing their use. 

Key issues to be addressed: 

* Consider how prominent the regulatory goal of consumer protection 
should be in the U.S. financial regulatory system. 

* Determine what amount, if any, of consolidation of responsibility may 
be necessary to enhance and harmonize consumer protections, including 
suitability requirements and disclosures across the financial services 
industry. 

* Consider what distinctions are necessary between retail and wholesale 
products, and how such distinctions should affect how they are 
regulated. 

* Identify opportunities to protect and empower consumers through 
improving their financial literacy. 

7. Regulators provided with independence, prominence, authority, and 
accountability. A regulatory system should ensure that regulators have 
independence from inappropriate influence; have sufficient resources, 
clout, and authority to carry out and enforce statutory missions; and 
are clearly accountable for meeting regulatory goals. 

A regulatory system should ensure that any entity responsible for 
financial regulation is independent from inappropriate influence; has 
adequate prominence, authority, and resources to carry out and enforce 
its statutory mission; and is clearly accountable for meeting 
regulatory goals. With respect to independence, policymakers may want 
to consider advantages and disadvantages of different approaches to 
funding agencies, especially to the extent that agencies might face 
difficulty remaining independent if they are funded by the institutions 
they regulate. Under the current structure, for example, the Federal 
Reserve primarily is funded by income earned from U.S. government 
securities that it has acquired through open market operations and does 
not assess charges to the institutions it oversees. In contrast, OCC 
and OTS are funded primarily by assessments on the firms they 
supervise. Decision makers should consider whether some of these 
various funding mechanisms are more likely to ensure that a regulator 
will take action against its regulated institutions without regard to 
the potential impact on its own funding. 

With respect to prominence, each regulator must receive appropriate 
attention and support from top government officials. Inadequate 
prominence in government may make it difficult for a regulator to raise 
safety and soundness or other concerns to Congress and the 
administration in a timely manner. Mere knowledge of a deteriorating 
situation would be insufficient if a regulator were unable to persuade 
Congress and the administration to take timely corrective action. This 
problem would be exacerbated if a regulated institution had more 
political clout and prominence than its regulator because the 
institution could potentially block action from being taken. 

In considering authority, agencies must have the necessary enforcement 
and other tools to effectively implement their missions to achieve 
regulatory goals. For example, in a 2007 report we expressed concerns 
over the appropriateness of having OTS oversee diverse global financial 
firms given the size of the agency relative to the institutions for 
which it was responsible.[Footnote 6] It is important for a regulatory 
system to ensure that agencies are provided with adequate resources and 
expertise to conduct their work effectively. A regulatory system should 
also include adequate checks and balances to ensure the appropriate use 
of agency authorities. With respect to accountability, policymakers may 
also want to consider different governance structures at agencies--the 
current system includes a combination of agency heads and independent 
boards or commissions--and how to ensure that agencies are recognized 
for successes and held accountable for failures to act in accordance 
with regulatory goals. 

Key issues to be addressed: 

* Determine how to structure and fund agencies to ensure each has 
adequate independence, prominence, tools, authority and accountability. 

* Consider how to provide an appropriate level of authority to an 
agency while ensuring that it appropriately implements its mission 
without abusing its authority. 

* Ensure that the regulatory system includes effective mechanisms for 
holding regulators accountable. 

8. Consistent financial oversight. A regulatory system should ensure 
that similar institutions, products, risks, and services are subject to 
consistent regulation, oversight, and transparency, which should help 
minimize negative competitive outcomes while harmonizing oversight, 
both within the United States and internationally. 

A regulatory system should ensure that similar institutions, products, 
and services posing similar risks are subject to consistent regulation, 
oversight, and transparency. Identifying which institutions and which 
of their products and services pose similar risks is not easy and 
involves a number of important considerations. Two institutions that 
look very similar may in fact pose very different risks to the 
financial system, and therefore may call for significantly different 
regulatory treatment. However, activities that are done by different 
types of financial institutions that pose similar risks to their 
institutions or the financial system should be regulated similarly to 
prevent competitive disadvantages between institutions. 

Streamlining the regulation of similar products across sectors could 
also help prepare the United States for challenges that may result from 
increased globalization and potential harmonization in regulatory 
standards. Such efforts are under way in other jurisdictions. For 
example, at a November 2008 summit in the United States, the Group of 
20 countries pledged to strengthen their regulatory regimes and ensure 
that all financial markets, products, and participants are consistently 
regulated or subject to oversight, as appropriate to their 
circumstances. Similarly, a working group in the European Union is 
slated by the spring of 2009 to propose ways to strengthen European 
supervisory arrangements, including addressing how their supervisors 
should cooperate with other major jurisdictions to help safeguard 
financial stability globally. Promoting consistency in regulation of 
similar products should be done in a way that does not sacrifice the 
quality of regulatory oversight. 

As we noted in a 2004 report, different regulatory treatment of bank 
and financial holding companies, consolidated supervised entities, and 
other holding companies may not provide a basis for consistent 
oversight of their consolidated risk management strategies, guarantee 
competitive neutrality, or contribute to better oversight of systemic 
risk.[Footnote 7] Recent events further underscore the limitations 
brought about when there is a lack of consistency in oversight of large 
financial institutions. As such, Congress and regulators will need to 
seriously consider how best to consolidate responsibilities for 
oversight of large financial conglomerates as part of any reform 
effort. 

Key issues to be addressed: 

* Identify institutions and products and services that pose similar 
risks. 

* Determine the level of consolidation necessary to streamline 
financial regulation activities across the financial services industry. 

* Consider the extent to which activities need to be coordinated 
internationally. 

9. Minimal taxpayer exposure. A regulatory system should have adequate 
safeguards that allow financial institution failures to occur while 
limiting taxpayers' exposure to financial risk. 

A regulatory system should have adequate safeguards that allow 
financial institution failures to occur while limiting taxpayers' 
exposure to financial risk. Policymakers should consider identifying 
the best safeguards and assignment of responsibilities for responding 
to situations where taxpayers face significant exposures, and should 
consider providing clear guidelines when regulatory intervention is 
appropriate. While an ideal system would allow firms to fail without 
negatively affecting other firms--and therefore avoid any moral hazard 
that may result--policymakers and regulators must consider the 
realities of today's financial system. In some cases, the immediate use 
of public funds to prevent the failure of a critically important 
financial institution may be a worthwhile use of such funds if it 
ultimately serves to prevent a systemic crisis that would result in 
much greater use of public funds in the long run. However, an effective 
regulatory system that incorporates the characteristics noted 
previously, especially by ensuring a systemwide focus, should be better 
equipped to identify and mitigate problems before it become necessary 
to make decisions about whether to let a financial institution fail. 

An effective financial regulatory system should also strive to minimize 
systemic risks resulting from interrelationships between firms and 
limitations in market infrastructures that prevent the orderly 
unwinding of firms that fail. Another important consideration in 
minimizing taxpayer exposure is to ensure that financial institutions 
provided with a government guarantee that could result in taxpayer 
exposure are also subject to an appropriate level of regulatory 
oversight to fulfill their responsibilities. 

Key issues to be addressed: 

* Identify safeguards that are most appropriate to prevent systemic 
crises while minimizing moral hazard. 

* Consider how a financial system can most effectively minimize 
taxpayer exposure to losses related to financial instability. 

Finally, although significant changes may be required to modernize the 
U.S. financial regulatory system, policymakers should consider 
carefully how best to implement the changes in such a way that the 
transition to a new structure does not hamper the functioning of the 
financial markets, individual financial institutions' ability to 
conduct their activities, and consumers' ability to access needed 
services. For example, if the changes require regulators or 
institutions to make systems changes, file registrations, or other 
activities that could require extensive time to complete, the changes 
could be implemented in phases with specific target dates around which 
the affected entities could formulate plans. In addition, our past work 
has identified certain critical factors that should be addressed to 
ensure that any large-scale transitions among government agencies are 
implemented successfully.[Footnote 8] Although all of these factors are 
likely important for a successful transformation for the financial 
regulatory system, Congress and existing agencies should pay particular 
attention to ensuring there are effective communication strategies so 
that all affected parties, including investors and consumers, clearly 
understand any changes being implemented. In addition, attention should 
be paid to developing a sound human capital strategy to ensure that any 
new or consolidated agencies are able to retain and attract additional 
quality staff during the transition period. Finally, policymakers 
should consider how best to retain and utilize the existing skills and 
knowledge base within agencies subject to changes as part of a 
transition. 

Mr. Chairman and Members of the Committee, I appreciate the opportunity 
to discuss these critically important issues and would be happy to 
answer any questions that you may have. Thank you. 

Contacts: 

For further information on this testimony, please contact Orice M. 
Williams at (202) 512-8678 or williamso@gao.gov, or Richard J. Hillman 
at (202) 512-8678 or hillmanr@gao.gov. 

[End of section] 

Appendix I: Agencies and Other Organizations That Reviewed the Draft 
Report: 

American Bankers Association: 
American Council of Life Insurers: 
Center for Responsible Lending: 
Commodity Futures Trading Commission: 
Conference of State Bank Supervisors: 
Consumer Federation of America: 
Consumers Union: 
Credit Union National Association: 
Department of the Treasury: 
Federal Deposit Insurance Corporation: 
Federal Housing Finance Agency: 
Federal Reserve: 
Financial Industry Regulatory Authority: 
Financial Services Roundtable: 
Futures Industry Association: 
Independent Community Bankers of America: 
International Swaps and Derivates Association: 
Mortgage Bankers Association: 
National Association of Federal Credit Unions: 
National Association of Insurance Commissioners: 
National Consumer Law Center: 
National Credit Union Administration: 
National Futures Association: 
Office of the Comptroller of the Currency: 
Office of Thrift Supervision: 
Public Company Accounting Oversight Board: 
Securities and Exchange Commission: 
Securities Industry and Financial Markets Association: 
U.S. PIRG: 

[End of section] 

Related GAO Products: 

Financial Regulation: A Framework for Crafting and Assessing Proposals 
to Modernize the Outdated U.S. Financial Regulatory System. [hyperlink, 
http://www.gao.gov/products/GAO-09-216]. Washington, D.C.: January 8, 2009. 

Troubled Asset Relief Program: Additional Actions Needed to Better 
Ensure Integrity, Accountability, and Transparency. [hyperlink, 
http://www.gao.gov/products/GAO-09-161]. Washington, D.C.: December 2, 2008. 

Hedge Funds: Regulators and Market Participants Are Taking Steps to 
Strengthen Market Discipline, but Continued Attention Is Needed. 
[hyperlink, http://www.gao.gov/products/GAO-08-200]. Washington, 
D.C.: January 24, 2008. 

Information on Recent Default and Foreclosure Trends for Home Mortgages 
and Associated Economic and Market Developments. [hyperlink, 
http://www.gao.gov/products/GAO-08-78R]. Washington, D.C.: October 16, 2007. 

Financial Regulation: Industry Trends Continue to Challenge the Federal 
Regulatory Structure. [hyperlink, http://www.gao.gov/products/GAO-08-32]. 
Washington, D.C.: October 12, 2007. 

Financial Market Regulation: Agencies Engaged in Consolidated 
Supervision Can Strengthen Performance Measurement and Collaboration. 
[hyperlink, http://www.gao.gov/products/GAO-07-154]. Washington, D.C.: 
March 15, 2007. 

Alternative Mortgage Products: Impact on Defaults Remains Unclear, but 
Disclosure of Risks to Borrowers Could Be Improved. [hyperlink, 
http://www.gao.gov/products/GAO-06-1021]. Washington, D.C.: September 19, 2006. 

Credit Cards: Increased Complexity in Rates and Fees Heightens Need for 
More Effective Disclosures to Consumers. [hyperlink, 
http://www.gao.gov/products/GAO-06-929]. Washington, D.C.: September 12, 2006. 

Financial Regulation: Industry Changes Prompt Need to Reconsider U.S. 
Regulatory Structure. [hyperlink, http://www.gao.gov/products/GAO-05-61]. 
Washington, D.C.: October 6, 2004. 

Consumer Protection: Federal and State Agencies Face Challenges in 
Combating Predatory Lending. [hyperlink, 
http://www.gao.gov/products/GAO-04-280]. Washington, D.C.: January 30, 2004. 

Long-Term Capital Management: Regulators Need to Focus Greater 
Attention on Systemic Risk. [hyperlink, 
http://www.gao.gov/products/GAO/GGD-00-3]. Washington, D.C.: October 29, 1999. 

Bank Oversight: Fundamental Principles for Modernizing the U.S. 
Structure. [hyperlink, http://www.gao.gov/products/GAO/T-GGD-96-117]. 
Washington, D.C.: May 2, 1996. 

Financial Derivatives: Actions Needed to Protect the Financial System. 
[hyperlink, http://www.gao.gov/products/GAO/GGD-94-133]. Washington, D.C.: 
May 18, 1994. 

[End of section] 

Footnotes: 

[1] GAO, Financial Regulation: A Framework for Crafting and Assessing 
Proposals to Modernize the Outdated U.S. Financial Regulatory System, 
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C.: 
Jan. 8, 2009). 

[2] GAO, High Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: Jan 22, 2009). 

[3] GAO, Financial Derivatives: Actions Needed to Protect the Financial 
System, [hyperlink, http://www.gao.gov/products/GAO/GGD-94-133] 
(Washington, D.C.: May 18, 1994). 

[4] GAO, Financial Regulation: Industry Changes Prompt Need to 
Reconsider U.S. Regulatory Structure, [hyperlink, 
http://www.gao.gov/products/GAO-05-61] (Washington, D.C.: Oct. 6, 2004); 
and Financial Regulation: Industry Trends Continue to Challenge the 
Federal Regulatory Structure, [hyperlink, 
http://www.gao.gov/products/GAO-08-32] (Washington, D.C.: Oct. 12, 2007). 

[5] See GAO, Bank Oversight: Fundamental Principles for Modernizing the 
U.S. Structure, [hyperlink, http://www.gao.gov/products/GAO/T-GGD-96-117] 
(Washington, D.C.: May 2, 1996). 

[6] GAO, Financial Market Regulation: Agencies Engaged in Consolidated 
Supervision Can Strengthen Performance Measurement and Collaboration, 
[hyperlink, http://www.gao.gov/products/GAO-07-154] (Washington, D.C.: 
Mar. 15, 2007). 

[7] [hyperlink, http://www.gao.gov/products/GAO-05-61]. 

[8] See GAO, Homeland Security: Critical Design and Implementation 
Issues, [hyperlink, http://www.gao.gov/products/GAO-02-957T] (Washington, 
D.C.: July 17, 2002). 

[End of section] 

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