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GAO Report: Dodd-Frank Regulators Failing to Carry Out Missions, Operate with Little Accountability and Transparency

Press Release

Location: Washington, DC

Nearly three years after enactment of the Dodd-Frank Act, two powerful regulators created under the law are not fulfilling their missionsand operate far from the public's eye, according to a Government Accountability Office (GAO) report reviewed at aFinancial Services Oversight and Investigations Subcommittee hearing today.

In 2011, then-Financial Services Committee Chairman Spencer Bachus (R-AL) and Congressman Randy Neugebauer (R-TX) requested that GAO audit the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR). FSOC and OFR were created by Dodd-Frank to identify and address threats to financial stability. OFR was also tasked with supporting FSOC and Congress by providing financial research and data.

However, despite having had adequate time and ample resources to stand up their operations, government auditors found that FSOC and OFR have not developed a comprehensive approach to identifying threats to the financial system.

Both regulatory bodies also lack an effective level of accountability and transparency, according to the GAO.

"Limits to FSOC's and OFR's transparency also contribute to questions about their effectiveness," the GAO said in its report.

"GAO's examination of the Council's transparency policies and its process to designate nonbank financial institutions for supervision by the Fed illustrates the fact that it has not provided the marketplace with a clear rules-based framework to work within," said Subcommittee Chairman Patrick McHenry (R-NC). "By examining FSOC's efforts to coordinate regulatory action among agencies and to identify systemic risks, including OFR's efforts in aid of those functions, it seems that neither FSOC nor OFR are presently equipped to discover potential future threats to the financial system and to proactively mitigate them."

Among some of the concerns GAO raised in its report are:

*Both FSOC and OFR need to do a better job sharing key financial risk information with other regulators.
*FSOC does not publish a publicagenda prior to meeting. It also frequently does not provide reasonable advance public notice of its meetings.
*The public generally cannot monitor the Council's activities in person because it has conducted approximately two-thirds of its meetings in private sessions even though the law requires it to hold public meetings "whenever possible."
*The public cannot easily monitor FSOC's progress toward fulfilling its statutory purpose because the Council does not maintain detailed records of its meetings and has not implemented a satisfactory policy to disclose those records.
*FSOC's many committees -- which consider policy matters before presenting them to the Council -- keep neither transcripts nor minutes of their meetings.Thus, FSOC does not maintain any record whatsoever of the work that these vital and influential committees perform on its behalf.

Thursday's hearing was the first in what will be an ongoing series of hearings this year that will examine Dodd-Frank, which enshrined "too big to fail" into law. Last week, Attorney General Eric Holder told the Senate Judiciary Committee he was "concerned" that prosecuting large financial firms would have a negative impact on the national economy.

Financial Services Committee Chairman Jeb Hensarling (R-TX) and Subcommittee Chairman McHenry sent a letter to Attorney General Holder and Treasury Secretary Jacob Lew asking for documents and information the Obama Administration is relying on to determine which financial institutions it believes are "too big to fail" and, thus, "too big to jail."

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