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In light of the passage of the 1999 Gramm-Leach-Bliley Act and increased competition within the financial services industry at home and abroad, GAO was asked to report on the current state of the U.S. financial services regulatory structure. This report describes the changes to the financial services industry, focusing on banking, securities, futures, and insurance; the structure of the U.S. and other regulatory systems; changes in regulatory and supervisory approaches; efforts to foster communication and cooperation among U.S. and other regulators; and the strengths and weaknesses of the current regulatory structure.

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Matter for Congressional Consideration

Matter Status Comments
While maintaining sector expertise and ensuring that financial institutions comply with the law, Congress may want to consider some consolidation or modification of the existing regulatory structure to (1) better address the risks posed by large, complex, internationally active firms and their consolidated risk management approaches; (2) promote competition domestically and internationally; and (3) contain systemic risk. If so, our work has identified several options that Congress may wish to consider (1) consolidating the regulatory structure within the "functional" areas; (2) moving to a regulatory structure based on a regulation by objective or twin peaks model; (3) combining all financial regulators into a single entity; or (4) creating or authorizing a single entity to oversee all large, complex, internationally active firms, while leaving the rest of the structure in place. If Congress does wish to change these or other options, it may want to ensure that legislative goals are clearly set out for any changed regulatory structure and that the agencies affected by any change are given clear direction on the priorities that should be set for achieving these goals. In addition, any change in the regulatory structure would entail changing laws that currently govern financial services oversight to conform to the new structure.
Closed - Implemented
On June 18, 2009, President Obama announced a package of reforms aimed at changing how the federal government oversees the financial markets and participants. One of the proposals was to eliminate the federal thrift charter and create a National Bank Supervisor that will conduct prudential supervision and regulation of federally chartered depository institutions and federal branches and agencies of foreign banks. Under this plan, the Federal Reserve will gain the power to oversee any large firm that poses a threat to the financial system and require these firms to hold more reserves. Also, the Treasury could appoint FDIC to orderly liquidate bank holding companies, in addition to its current authority to liquidate banks. The plan also entertains the concept of a systemic risk regulator. In June and July, House Financial Services held a series of hearings on these proposals. Senate Banking has announced it will also hold hearings later in the year. As such, Congress is considering some consolidation or modification of the existing regulatory structure.

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