FCIC or the Financial Crisis Inquiry Commission, which was established in 2009 by the US Congress, has an aim to unshield the roots of financial crisis on 2008. The 2011 financial report revealed that the crisis was due to a confluence of elements and it was avoidable.
Elements to Avoid Financial Crisis
See the list below:
1. Systemic Failures in Financial Regulation
LAX OVERSIGHT
Particularly in the shadow banking sector, the paper sharply attacked authorities for not sufficiently supervising the rising dangers in the financial system.
REGULATORY CAPTURE
One major contributing aspect judged to be the financial industry’s influence on authorities, therefore impairing efficient control and enforcement.
INSUFFICIENT CAPITAL REQUIREMENTS
Banks were not sufficiently capitalized to sustain the losses incurred during the crisis, therefore causing extensive collapses.
2. Broad Failures in Corporate Governance
- Driven by a quest of short-term earnings and compensation, financial organizations engaged in too high risk-taking should be avoided.
- Complicating financial instruments and conflicts of interest inside financial institutions helped to cause the crisis.
- Lack of Transparency: Many financial instruments’ complexity made it challenging for officials and investors to grasp their hazards.
3. The Function of Mortgage Markets and Housing
MELTDOWN OF SUBPRIME MORTGAGES
The housing bubble and its crash were greatly influenced by the mass issuing of subprime mortgages to borrowers with low creditworthiness.
PREDATORY LENDING PRACTICES
Many of the borrowers were deceived or under pressure to accept mortgages they couldn’t afford.
SECURITY OF RISKY MORTGAGES
The process of securitizing mortgages, aggregating them into sophisticated securities, and selling them to investors distributes the risk of the housing bubble throughout the financial system.
4. Key Policy Errors
- Low-interest-rate policies of the Federal Reserve helped to create the housing bubble.
- Insufficient consumer protection policies neglected to sufficiently shield borrowers from unscrupulous loan tactics.
End Notes
Emphasizing the systematic shortcomings in policy, corporate governance, and regulation that led to the crisis, the FCIC study offers a thorough examination of the origins of the 2008 financial crisis. The results of the research have major ramifications for reform of the financial system and act as a sobering reminder of the need of thorough regulatory control and prudent risk management.