A U.S. government report released this week found that financial regulatory agencies failed to assess risks across the financial system and ignored warning signs before the economic crisis began.
The report by the General Accountability Office and requested by Democratic Senator Jack Reed of Rhode Island said that in some cases regulators relied too frequently on financial firms' assessments of their own financial health.
Lawmakers are considering establishing a regulatory agency to monitor and manage risk at banks and securities firms, or expanding the authority of one existing agency - perhaps the Federal Reserve or the Federal Deposit Insurance Corporation - to provide the oversight.
In testimony to the Senate Banking Committee, Federal Reserve Governor Daniel Tarullo agreed that a comprehensive approach is necessary.
"We do need effective consolidated supervision of any systemically important institution," said Daniel Tarullo.
Tarullo argued that the Federal Reserve should have a role in addressing systemic risks to the financial system.
But the chairman of the Federal Deposit Insurance Corporation, Sheila Bair, suggested a new regulatory body should be modeled after her agency.
"The resolution entity should have the kinds of powers the FDIC has to deal with such things as executive compensation," said Sheila Bair. "When we take over a bank we have the power to hire and fire. We typically get rid of the top executives and the managers who caused the problem. We can terminate compensation agreements, including bonuses. We do whatever it takes to hold down costs."
The chairman of the Senate Banking Committee, Democratic Senator Chris Dodd, suggested that was a good idea.
"I wonder whether it wouldn't make more sense to give authority to resolve failing and systemically important institutions to the agency with actual experience in the area, the FDIC," said Senator Dodd.
President Barack Obama Wednesday said his administration would soon announce new financial industry oversight that would include an authority that would protect creditors, depositors and consumers.