I have been long concerned about the tendency of agencies with national and homeland security responsibilities to focus exclusively on strengthening their own programs.

you need to do more here, and that is one of the main tools that we have, is that type of horizontal review.

Let me talk to Mr. Cole. As the umbrella regulator of several large financial institutions, do you feel that you are responsible, the Federal Reserve is responsible for the overall capacity of that institution as an enterprise to evaluate…

the fact that they did not have systems in place to adequately assess the risk, which I think is a fair conclusion of the report of the GAO.

it raises an issue, which is that in 2006, you had at least had serious concerns because of the stress testing that these firms could not handle or have systems in place to deal with the risk.

I would hope it would be public.

I would presume, and correct me, that those procedures, those appropriate procedures you described, were not being deployed very successfully at Bear Stearns or Lehman Brothers.

And it raises the question with respect to the Federal Reserve that if these documents are solely within the purview of the Federal Reserve, how is the broader financial community and the broader community and how is Congress to inform…

You know, making the diagnosis that you are ill and then not treating the patient is, you know, malpractice.

Well, let me raise--because this has been publicly discussed.

This financial crisis has demonstrated that, contrary to the presumption of many, financial institutions were unprepared and in many cases incapable of adequately assessing the risks that they were bearing on their books.

The trillions of dollars in losses stand as witness to the many failures of risk management at these firms.

When self-interest and market discipline break down, we hope that the safety net of regulators will guide us out of the storm.

The governance structures, the firm managers, and sophisticated models all failed to capture the magnitude of the risks that were building.

Blame must primarily be placed at the feet of these financial institutions which gambled and then cashed in on exorbitant transaction fees for creating exotic new financial products.

But there is another way sort of to get the message across to the marketplace, and that is enforcement action.

You know, where was the risk assessment at the enterprise, as you described it?

Yes. Mr. Long, the same sort of set of issues about reliance upon information and being a captive of the regulated entity.