Government Accountability Office (Image: Shutterstock).
The financial regulatory system suffers from fragmentation and overlapping responsibilities, the Government Accountability Office said Wednesday, in a report that renews the suggestion that Congress could consider consolidating the regulators.
"Modernizing the U.S. financial regulatory system and aligning it to current conditions is essential to reducing the likelihood that our nation will experience another major financial crisis," the GAO said, in its governmentwide examination of "high risk" federal programs and agencies.
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The GAO updates its high risk report every two years; modernizing the financial regulatory regime has appeared in past reports as well.
In the report, the GAO said that Congress should consider whether changes to that regime are needed to improve oversight, ensure that consumer and investor protections are consistent and to ensure that financial oversight of similar institutions is consistent.
"For example, Congress could consider consolidating the number of federal agencies involved in overseeing the safety and soundness of depository institutions, combining the entities involved in overseeing the securities and derivatives markets, and determining the optimal federal role in insurance regulation, among other considerations," GAO said.
GAO raised the possibility of consolidation in a 2016 report that raised similar issues.
"While NCUA supervises only federally-chartered credit unions, it is the deposit insurer for both federal credit unions and most state-chartered credit unions," the GAO said in that report. "Therefore, its role as deposit insurer creates overlap with state credit union regulators."
In a letter attached to that report, NCUA Executive Director Mark Treichel said that agency officials "could find no compelling evidence throughout the document" to justify consolidation of financial regulators.
"NCUA is the only federal agency with regulatory and supervisory authority over federal credit unions, in contrast with the banking regulators," he wrote. "In addition, as noted, NCUA is responsible for insuring most state-chartered credit unions."
In the report issued Wednesday, the GAO said that the Financial Stability Oversight Council should work with financial regulators to help determine when agencies should work together on rulemaking decisions.
The report also identifies federal housing finance system as a high priority, saying that Congress should consider establishing objectives for the federal programs, including a transition plan that would allow Fannie Mae and Freddie Mac to exit conservatorship.
The GAO also said that the National Flood Insurance Program needs to be overhauled. Legislation to accomplish that goal has remained stalled on Capitol Hill.
And the GAO said that the U.S. Postal System is not sustainable on its current course, but the report does not address the issue of ancillary services, such as postal banking.
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