WASHINGTON – Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, ID-Conn., and Ranking Member Susan Collins, R-Me., heard testimony Wednesday about the inadequacy of the federal financial regulatory system that failed to foresee the largest financial collapse in the past 75 years.

The hearing examined the findings of a newly-released Government Accountability Office (GAO) report, which concluded that our current regulatory structure is fractured, outdated, and unable to meet today’s challenges. It also highlights key changes in financial markets that have exposed significant gaps and limitations in our ability to protect the public interest. Lieberman said he intended to hold a series of hearings on the subject.

“Rather than contributing to the stability of financial markets, our fractured regulatory system encourages financial institutions to play regulators off against one another,” Lieberman said. “New and complex financial products are created that bypass antiquated regulatory regimes. In certain derivatives markets, regulation is absent altogether. All in all, these problems surely contributed to the build-up of systemic risks and the eventual breakdown in credit and financial markets last year that has put millions of people out of work, destroyed so much of the savings and home values of the American people and broken our economic confidence in the future".

“Given the scope of the crisis we face today on top of the crises that we have gone through over recent years, including the Savings and Loan scandals, the dot-com bubble, and the Enron accounting mess, now is the time to think not just about regulatory reform, but about regulatory reorganization.”

Collins said: “The spiraling financial crisis has harmed virtually every American family. Regulatory reform is absolutely essential to restoring public confidence in our financial markets. America’s consumers, workers, savers, and investors deserve the protection of a new regulatory system that modernizes regulatory agencies, sets safety and soundness requirements for financial institutions to prevent excessive risk-taking, and improves oversight, accountability, and transparency. Our goals must combine several vital objectives: stability for the financial system, safety and soundness regulation for institutions, strict protections for investors and consumers, transparency and accountability for transactions, and increased financial literacy for the public.”

Witnesses included Gene Dodaro, Acting Comptroller of GAO, Professor Howell Jackson, prospective Acting Dean of Harvard Law School, and Professor Steven Davidoff of the University of Connecticut School of Law.