[Stability of Financial Markets: Federal Reserve Responsibility?]

GAO discussed the Federal Reserve System's responsibilities for financial market stability in a changing economic environment. GAO found that: (1) the Federal Reserve shared the responsibility for financial stability with the commercial banking system through deposit insurance; (2) commercial banks were responsible for redeeming the insured deposits they issued on demand at 100 cents on the dollar and for providing emergency funding when alternative sources were not available; (3) although the Federal Reserve provided liquidity during financial market disruptions, deposit insurance, and oversight of the banking system as part of its federal financial safety net, it was not designed to prevent financial disruptions; (4) repeal of the Glass-Steagall laws separating the banking and securities businesses could increase the Federal Reserve's burden in maintaining financial market stability; (5) current restrictions limiting interaffiliate transactions provided safeguards against abusive or unsafe practices; and (6) while contingency planning would enable markets and regulators to better cope with market emergencies, development of an intermarket regulatory structure was more appropriate.