WASHINGTON — One day after hearing from chief executives of the largest institutions, the Financial Crisis Inquiry Commission turned its attention Thursday to policymakers, and how the government can fix the lapses that worsened the financial meltdown.
Though the panel showed a greater willingness to delve into policy issues than it did Wednesday, the hearing still did not offer much perspective on the causes of the crisis.
Commission members grilled Securities and Exchange Commission Chairman Mary Schapiro about her agency's failure to address problems at financial giants it regulated, and they heard an update from Attorney General Eric Holder on efforts to investigate mortgage fraud. Other topics included the need for stronger oversight of derivatives, and the Obama administration's proposed tax for large banks that received bailout money.
Schapiro, who testified alongside Holder and Federal Deposit Insurance Corp. Chairman Sheila Bair, spent much of the hearing under scrutiny. Though she was not running the agency at the time — she took over at the start of the Obama administration — several commissioners noted that the SEC was responsible for supervising Bear Stearns Cos. and Lehman Brothers, whose failures in 2008 were dark chapters in the crisis.
"If you look back at the key events in the crisis, the SEC is essentially missing in action and publicly silent," said Douglas Holtz-Eakin, a member of the commission and a former chief adviser to Sen. John McCain's presidential campaign.
Bob Graham, the former Democratic senator from Florida, asked Schapiro whether "there are any peculiar structural issues with the SEC that deserve specific attention as part of the general consideration of regulatory change."
Schapiro rejected the notion that her agency is fundamentally flawed. She said other agencies have the advantage of not needing to ask lawmakers for funding when they want to initiate something new. For example, the FDIC's revenue comes from deposit insurance premiums levied on banks.
"One area where we have less independence than our fellow financial regulators is that we are subject to an appropriations process in Congress and through the president's budget, while the other financial regulators are self-funded," she said.
Holder, meanwhile, touted the Justice Department's investigations of mortgage fraud. The Federal Bureau of Investigation is currently probing 2,800 cases, he said, a 400% increase in the past five years. He acknowledged that much of the department's effort has been focused on national security since the 2001 terror attacks but said the administration plans to pay more attention to fraud enforcement.
"In our budget for 2010, we have made combating white-collar crime a real priority, and the budget request that's been passed by Congress and signed by the president provides nearly $50 million in program increases to the department to pursue white-collar crime, including both financial and mortgage fraud," Holder said.
Other commission members used the hearing to press for policy changes they champion. Brooksley Born, the former chairwoman of the Commodity Futures Trading Commission who called attention to the dangers posed by derivatives, asked Bair whether this market "still poses a systemic risk" and whether "any regulatory reform is needed."
Bair was quick to embrace the question. "This should be a high priority for Congress, and there's only so much regulators can do until that legislation is enacted," she said.
Keith Hennessey, a panel member and former senior economic adviser to President Bush, used his opportunity to question Bair as a chance to telegraph concerns about the Obama administration's plans for a bank tax. Critics have charged that the administration's plan focuses on banking companies, though several other large companies, such as the government-sponsored enterprises and automakers, benefited from government assistance.
"There are significant large financial institutions...who we clearly have evidence posed systemic risk but are exempt from the new tax," Hennessey said. "Does that concern you at all?"
Bair dodged the question. "I have not seen the administration's proposal," she said.