The head of the U.S. Securities and Exchange Commission today blasted Congress for failing to give any federal regulatory agency the authority to regulate investment bank holding companies such as American International Group Inc.
SEC Chairman Christopher Cox also said, at a Senate Banking Committee hearing, that the SEC is investigating the roles that insurers, rating agencies and other entities played in securitizing subprime loans.
Cox said the SEC also has “over 50 pending law enforcement investigations in the subprime area.”
Cox said the subprime securitization enforcement action targets fall primarily into three broad categories:
- Subprime lenders.
- Investment banks, credit rating agencies, insurers and others involved in the securitization process.
- Banks and broker-dealers that sold mortgage-backed investments to the public.
“The reason for this aggressive enforcement investigation is the significant opportunities that exist for manipulation in the $58 trillion [credit default swap[ market, which is completely lacking in transparency and completely unregulated,” Cox said.
When Congress decided against giving any agency regulatory authority over investment banks in the Gramm-Leach Bliley Financial Services Modernization Act of 1999, that was a “costly mistake,” Cox said.
Lack of federal oversight over the CDS market is “another regulatory hole,” and Congress must close this hole to prevent future cases of the sorts of problems that brought down AIG, New York, and Lehman Brothers Holdings Inc., New York, Cox said.