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GAO makes suggestions to mend 'fragmented' financial regulation structure

The GovernmentAccountability Office recommended congressional action to change the mission orexpand the powers of the Financial Stability Oversight Council, and it said theFSOC's process of identifying new threats needs to be more informed by better monitoringtools.

The reportstated that the FSOC may not have the tools it needs to comprehensively respondto systemic risks because it cannot compel action to address risks that are notunder the authority of any particular agency. "Because of the limitations inFSOC's authorities, without congressional action FSOC may not have the tools itneeds to carry out its mission to comprehensively respond to systemic risks, andit may be difficult to hold the council accountable for doing so," the GAOstated.

The agency also said that the FSOC's decisions have not beenfully informed by the systemic risk monitoring efforts of the Federal Reserve orthe Treasury Department's Office of Financial Research, but rather "its processfor identifying new threats continues to be based on participants' expert views."The GAO said FSOC needs better access to existing systemic risk monitoring tools.In turn the Fed and the OFR should coordinate to align their largely similar systemicrisk monitoring efforts to better inform FSOC's Systemic Risk Committee.

The recommendationswere part of the GAO's examination of the U.S. financial regulatory structure, whichit described as "complex and fragmented." Among other actions, the GAOrecommended that Congress consider consolidating the number of agencies that overseesafety and soundness in depository institutions, as well as combining the regulatorsof the securities and derivatives markets. It also recommended transferring prudentialregulators' consumer protection authorities of large depository institutions tothe Consumer Financial Protection Bureau.