Yesterday, the U.S. Senate voted to create an independent bi-partisan Financial Markets Commission (FMC) to investigate the causes of the financial crisis. By a 92-4 voice vote, the measure was adopted as an amendment to a bipartisan bill entitled the Fraud Enforcement and Recovery Act of 2009 (FERA), which is intended to strengthen U.S. power and resources to prosecute mortgage and financial fraud and expand the federal fraud laws to apply to funds paid out in the financial bailout and economic stimulus packages. Senators Johnny Isakson (R-GA) and Kent Conrad (D-ND), the co-sponsors of the amendment to create the FMC, stated that “the only way to get an objective evaluation of where mistakes were made is to create an independent commission of experts to ask what went right, what went wrong and what could we have done to prevent this. We need a forensic audit of the laws of the United States as it relates to the financial markets and our economy.”

Under the legislation, the FMC would be authorized to investigate within an 18-month period all circumstances related to the financial crisis, including whether fraud, abuse or lapses by federal regulators caused the financial crisis. The FMC also would examine the roles of lending practices and credit rating agencies in the financial crisis, in addition to scrutinizing capital requirements and regulations governing liquidity and borrowing allowances by banks and unregulated financial companies. The FMC would have subpoena power and the authority to refer evidence of any violation of existing laws by individuals or institutions to the U.S. Attorney General and state attorney generals. After the 18-month period, the FMC would make its recommendations to Congress for statutory or regulatory changes necessary to avoid a recurrence of this financial crisis.

Members of the 10-person FMC would be appointed by Senate and House party leaders, as well as the leaders of the Senate Banking Committee and the House Financial Services Committee. Akin to the 9/11 Commission, current members of Congress would be prohibited from serving on the panel. Following the anticipated passage of FERA by the Senate, the legislation must be passed by the House and signed into law by President Obama before the FMC could begin any investigation.

Similar congressional efforts to push for a special inquiry commission or panel into the financial crisis have intensified since the eruption of the financial crisis last fall. In early March, Senators Byron Dorgan (D-ND) and John McCain (R-AZ) introduced legislation to create a Senate select committee with full subpoena power to investigate the circumstances leading to the financial crisis. Earlier this week, Representative John Dingell (D-MI) introduced legislation to establish a House select committee to investigate the causes of the current financial crisis and report its findings by the end of the current Congress. Finally, House Speaker Nancy Pelosi has recently indicated her intentions to push for a comprehensive investigation into Wall Street’s practices, modeled after the inquiry commenced by the Pecora Commission in 1933 following the 1929 stock market crash, which resulted in the creation of the Securities and Exchange Commission. Speaker Pelosi will reportedly speak to congressional lawmakers this week about Pecora-style hearings.