Cox Testifies on Lessons from Credit Crisis

Testimony Concerning the Role of Federal Regulators: Lessons from the Credit Crisis for the Future of Regulation, by Chairman Christopher Cox, Before the Committee on Oversight and Government Reform
United States House of Representatives, October 23, 2008:

First, I think every regulator wishes that he or she would have been able to predict before March of this year what we have recently seen not just in investment banks and commercial banks but the broader economy: the meltdown of the entire U.S. mortgage market, which was the fundamental cause of this crisis.... But none of the investment banks, commercial banks, or their regulators in the U.S. or around the world in March 2008 used a risk scenario based on a total meltdown of the mortgage market. It clearly would have been prescient for the SEC to have done so.

Second, I would have wanted to question every one of the assumptions behind the Consolidated Supervised Entities program for investment bank holding companies....

Third, both as SEC Chairman and as a Member of Congress, knowing what I know now, I would have wanted to work even more energetically with all of you to close the most dangerous regulatory gaps. I would have urged Congress to repeal the swaps loophole in the 2000 Commodity Futures Modernization Act....

Fourth, I would have worked even more aggressively than I have over the last two years for legislation requiring stronger disclosure to investors in municipal securities....

The lesson in this for legislators is threefold.

First, eliminate the current regulatory gap in which there is no statutory regulator for investment bank holding companies....

Second, recognize each agency's core competencies. The mission of the SEC is investor protection, the maintenance of fair and orderly markets, and the facilitation of capital formation. In strengthening the role of the SEC, build on these traditional strengths — law enforcement, public company disclosure, accounting and auditing, and the regulation of exchanges, broker-dealers, investment advisers, and other securities entities and products. The vitally important function of securities regulation is best executed by specialists with decades of tradition and experience.

Third, ensure that securities regulation and enforcement remain fiercely independent....