Today, the Senate Committee on Homeland Security and Governmental Affairs held a hearing entitled “Where Were the Watchdogs? The Financial Crisis and the Breakdown of Financial Governance.” The witnesses included:

Gene L. Dodaro, Acting Comptroller General, U.S. Government Accountability Office

Howell E. Jackson, James S. Reid Professor of Law, Harvard Law School

Steven M. Davidoff, Professor of Law, University of Connecticut School of Law

In his opening remarks, Chairman Leiberman posed the key question intended to be addressed at the hearing: “Is the existing U.S. financial regulatory system adequately equipped to protect consumers, investors, and our economy?” Much of the testimony addressed the gaps in the current financial regulatory system that have contributed to the current financial crisis, and the witnesses called for a massive overall of the “outdated” and “ill-equipped” structure now in place. Much of the discussions centered on the GAO's recent report, which suggests ways to update the current regulatory system.

There was consensus among the witnesses that the current regulatory system is too fragmented. Professor Davidoff suggested that the “limited-overlapping jurisdiction” of various agencies allows for damaging activity to go undetected. Similarly, Professor Jackson noted that the “boundaries of regulators are cramped” and that we need to create “broad jurisdictional mandates.” He also suggested that combined agencies would attract higher quality personnel and create greater expertise.

All three witnesses agreed that a single regulatory authority should monitor, and react to, systemic risks as they arise. Professor Jackson suggested that Congress create a “market stability regulator” with the authority to oversee other agencies. Acting Comptroller General Dodaro agreed, stating that the market stability regulator should have “broad powers” and adopt a “proactive” approach.

Lastly, there was consensus among the witnesses that Congress should not focus on the details of any one sector, but rather should create overarching goals that agencies can then build upon. As Professor Davidoff put it, “Congress should set up the structure,” but leave the rules to the agencies.