US regulators ignored red flags on risk — GAO report
The U.S. government’s hodgepodge of financial regulatory agencies failed to take a big-picture view of risk and ignored red flags in the current economic crisis, a government report said on Wednesday.
“Regulators did not effectively address the weaknesses or in some cases fully appreciate their magnitude, until the institutions were stressed,” the U.S. Government Accountability Office said in its report.
“No regulator systematically looks across institutions to identify factors that could affect the overall financial system,” the report said.
A slew of regulators with differing responsibilities, including the Federal Reserve, the U.S. Securities and Exchange Commission, the Federal Deposit Insurance Corp and several others, in some cases did identify risk but did not act on it, the report said.
In some cases, regulators admitted they relied on corporate management’s descriptions of risk, including in the subprime mortgage area, according to the report.
Policymakers are considering giving increased authority to one regulator, possibly the Fed or FDIC, to be a systemic risk regulator that would have broad authority to monitor and manage risk across firms and products.
A subcommittee of the U.S. Senate’s Banking committee was scheduled to meet Wednesday afternoon to discuss the report and hear from officials at the SEC and other financial regulators.
Added: March 10, 2009
Fed Chairman Ben Bernanke Calls for Regulatory Reform, Including a Systemic Risk Regulator, Close Supervisory Oversight, and High Capital & Liquidity Standards; Further Analysis and Discussion with Dan Alpert of Westwood Capital Management; Bernanke Calls