Washington, D.C. – The Government Accountability Office (GAO) today released a report on the nation’s “fragmented and complex” financial regulation system. According to the report, “A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System,” the nation’s financial regulatory system lacks effective oversight, reporting, and coordination.

Senator Susan Collins said, “The GAO’s new report confirms my belief that Congress must make reform of our financial regulatory system a priority. Regulatory reform is absolutely essential to restoring public confidence in our financial markets. As the Congress addresses the economic crisis, 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.”

Such weaknesses in the nation’s financial regulation system has contributed to the current economic crisis affecting every sector of the economy, from major manufacturers and pension funds to community banks and the Maine lobster industry. At the end of the last session of Congress, Senator Collins introduced the Financial Regulation Reform Act which would subject Wall Street investment-bank holding companies to Federal Reserve regulation for safety and soundness and close the gap that has allowed credit default swaps and other financial instruments to escape regulation by both federal and state regulators. Specifically, it would strengthen the financial system by establishing regulation for investment-bank holding companies, instituting reporting requirements for credit default swaps, and establishing a commission to study and recommend additional comprehensive regulatory reforms. Senator Collins plans to reintroduce a bill to reform our nation’s financial regulatory system during the current session of Congress.

The GAO report released today is a public document and may be examined at the GAO Web site, The report code is GAO-09-216. In addition to describing the current U.S. financial regulatory structure, the report reviews the role of “less-regulated entities” such as hedge funds and credit-rating agencies and of new financial instruments including mortgage-backed securities in the current crisis. It also proposes criteria for evaluating new policy proposals, such as system-wide focus, increased transparency, flexibility, better protection for consumers and investors, and less cost exposure for taxpayers.