January 15, 2010

FDIC: Speeches & Testimony - 1/14/2010 Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on the Causes and Current State of the Financial Crisis before the Financial Crisis Inquiry Commission; Room 1100, Longworth House Office Building January 14, 2010 Chairman Angelides, Vice Chairman Thomas and Commissioners, I appreciate the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC) on the causes and current state of the financial crisis—the most severe financial crisis and the longest and deepest economic recession since the Great Depression. The last major financial crisis—the thrift and banking crisis of the 1980s—resulted in enactment of two laws designed to improve the financial regulatory system: The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Combined, FIRREA and FDICIA significantly strengthened bank regulation, and provided banks strong incentives to operate at higher capital levels with less risk, but these regulations have also created incentives for financial services to grow outside of the regulated sector. In the 20 years following FIRREA and FDICIA, the shadow banking system grew much more quickly than the traditional banking system, and at the onset of the crisis, it's been estimated that half of all financial services were conducted in institutions that were not subject to prudential regulation and supervision. Products and practices that originated within the shadow banking system have proven particularly troublesome in this crisis. In particular, the crisis has shown that many of the institutions in this sector grew to...

Jodi Dean

Jodi Dean is a political theorist.

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