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During the past few months, I'm not sure a day has passed without the abuses of the mutual fund industry appearing on the front pages of newspapers and featured in television and radio interviews. The situation seems reminiscent of the scandals that led up to the passage of the Sarbanes-Oxley Act. You can tell this situation has a lot of interest by the number of committees holding hearings and the number of bills being written. I hope we can address this situation using a methodical and balanced hearing process, just like we did in the recent accounting reform.

The troubles with the securities industry bear a strange resemblance to the troubles that faced the banking industry in the late 1980s and early 1990s. During the early- and mid- 1980s the banking industry encountered a sizzling economy and a set of banking regulators that was considerably weak. The banking industry took advantage of the situation and our nation was faced with one of the most severe banking crises since the Second World War.

In the late 1980s and early 1990s Congress passed a series of banking laws to give the banking regulators a much stronger regulatory scheme and enforcement authority to set the industry straight. Today, our banking system is very strong and sound and investor confidence in the primary banking business is high.

Today, the securities industry mimics the banking industry of the early 1990s. The securities industry, like their banking counterparts, took advantage of a very strong economy of the late 1990s and a very weak regulator. Legal changes came last year when accounting irregularities surfaced; we started with the passage of the Sarbanes-Oxley Act to restore investor confidence. It appears almost certain that legislation will be necessary to restore investor confidence in the mutual fund industry.

The major difference that I would like to see in Congress' reaction to the crisis in the securities industry is to thoroughly evaluate the problem to find the right solution. One of the major problems Congress had with passing several large pieces of legislation of banking legislation in a relatively short period of time is that, today, the banking industry may be over-regulated. This hurts community banks' ability to survive and grow.

With respect to the securities industry, we should not rush to pass legislation as we may do undue harm to the industry. However, we should take the approach that we used in the Sarbanes-Oxley Act. Typically, for every action Congress has a tendency to overreact. In this situation, we need to thoroughly review the problem to find the right solution.

I'm not saying that the Sarbanes-Oxley Act was perfect. We still have to be careful of the cascading effect on small entities with that law. There may be unintended consequences to solutions that we consider for mutual funds.

Currently, the SEC has the authority under existing law to handle the late trading and timing issues. There is a record trail of all of these transactions. What needs to be done is to adjust the current regulatory scheme and to have greater enforcement of those rules.

Chairman Donaldson, welcome yet again. Thank you for appearing before our Committee. This has been a very hectic year for you. Hopefully, with the passage of laws to increase the appropriations and hiring authority for the SEC, we will make the SEC much stronger.

Thank you Chairman Shelby for holding this hearing.