U.S. watchdog probes financial regulatory structure

A US 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.

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.

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