GSEs Need Strong Regulation.(Government Sponsored Enterprise)

Sen. Shelby, R-Ala., is chairman of the Senate Banking Committee and a key player in the debate about possibly revamping oversight of the government-sponsored enterprises. This viewpoint is an excerpt of his statement at a recent congressional hearing in which he outlined several legislative policy challenges facing the committee.

I would like to briefly touch upon the committee's efforts to create a strong and credible new regulator for the Housing GSEs. We have held several hearings this year on this issue and favorably reported legislation out of the committee on April 1. I recognize that Fannie Mae, Freddie Mac and the Federal Home Loan Banks provide real benefits to the U.S. housing market and the promotion of homeownership.

However, it has also become abundantly clear that their respective regulators are woefully inadequate to supervise the institutions. Fannie and Freddie, the second and fifth largest financial institutions in the United States, are too important to the economy to have a regulator with less power than the regulator of a small community bank.

It has been extremely difficult to craft a consensus bill that will enjoy broad support among Republicans and Democrats, and is acceptable to the administration. The tight 12-9 vote on the committee demonstrated that even with expansive affordable housing mandates and watered-down receivership authority, we could not attract enough from across the aisle to ensure enactment into law. The future of the bill remains uncertain, but I intend to continue to press the issue of GSE reform in the Senate.

We have a tremendously dynamic economy where change is a constant and driving force. Businesses need to be able to adapt to changing markets. There are instances, however, where laws and regulations impede this ability. The purpose of regulation is to establish fair markets that promote competition and innovation. Outdated laws only act as a drain on productivity and growth. There are also larger questions regarding the overall structure of the regulatory regime. Our responsibility therefore, extends beyond reviewing the content of regulation. We must pay close attention to the structure of regulatory organizations to ensure they function effectively.

One of my first acts as chairman was to commission the General Accounting Office to perform an analysis of the present regulatory structure of the U.S. financial services sector. During the last 30years, there has been a ...