Opening Statement of Rep. Spencer Bachus from “Examining Proposals on Insurance Regulatory Reform†hearingMortgagePress.comRep.Spencer Bachus, GAO, Financial Services Committee
Mr. Chairman, since the creation of the Financial Services
Committee in 2001, this Subcommittee has held well over a dozen
hearings and roundtables on the need for insurance reform
legislation. At each of these hearings the vast majority of
witnesses testified strongly about the need for modernizing our
regulatory system.
The Government Accountability Office has issued two reports
recommending modernization of our regulatory structure. In its
October 2007 report, GAO stated that The development of large,
complex, internationally active firms whose product offerings span
the jurisdiction of several agencies creates the potential for
inconsistent regulatory treatment of similar products, gaps in
consumer and investor protection, or duplication among regulators.
Interestingly, this critique was directed not only at insurance
regulation, but also federal regulation of banking and
securities.
The issue is not, as some might suggest, an issue of inadequate
or excessive regulation. Rather, it is the failure of Congress and
the regulators to keep up with the rapid evolution of the financial
services marketplace.
The Financial Services Committee was created at the turn of the
millennium, after the enactment of Gramm-Leach-Bliley, partly in
recognition of the convergence of the financial services sectors,
but also as an impetus to overcome past turf battles hindering
financial modernization efforts. No one has testified that our
current regulatory system is optimal, or that it would be recreated
in anything resembling its current form if Congress were to
redesign it from the ground up. In fact, our European partners are
leap-frogging ahead of us, by adopting multiple levels of reform,
including home state deference within the EU, some EU-wide uniform
rules, and limited consolidated centralization.
Reform of our system is critical, not only for some marginal
industry efficiency that could lower costs somewhat for consumers,
but more importantly to address the current patchwork quilt of
regulations that smothers innovation and competition in some areas
while leaving dangerous gaps in others.
According to a 2004 GAO report, the reliance on our current
system of functional regulators results in no one agency or
mechanism [that] looks at risks that cross markets or industry
segments or at the system and its risks as a whole. Reuters
reported last week that the current bond insurance/subprime crisis
is likely to cause global losses of over $1 trillion. Irresponsible
actions by State and some federally supervised mortgage lenders and
brokers triggered massive problems in the poorly regulated bond
insurance market. These in turn led to a complete collapse of
portions of the bond markets, a sharp reduction in liquidity across
virtually all asset classes, and ultimately a tightening noose of
credit constriction around the American consumer leading to further
mortgage foreclosures.
There is lots of blame to go around, but no one regulator was in
a good position to understand the systemic risk implications of
this latest crisis. Certainly Congress should have paid more
attention to warning flags by the GAO and others over the last
several years. What is everybodys responsibility is effectively no
ones responsibility. This is our most pressing need for reform.
With respect to improvements to the current system of functional
regulation, in addition to the several thoughtful proposals before
us today, I would note that the GAO has completed over 39 studies
since this Committee was created recommending specific insurance
reforms. At my request, GAO is now reviewing many of these reports
to determine the extent to which the problems identified have been
addressed. For over a hundred years Congress has been receiving
testimony that reform is around the corner, with great new systems
being developed. Yet innovation and globalization in the
marketplace continue to significantly outpace parochial reform.
Thank you, Mr. Chairman, for convening todays hearing, and thank
you to all of the witnesses for providing insight into this
important reform discussion.
