March 5, 2009
GAO Testimony on Systemic Risk Released
SYSTEMIC RISK: Regulatory Oversight and Recent Initiatives to Address Risks Posed by Credit Default Swaps; Highlights of GAO-09-397T:
The U.S. financial system is more prone to systemic risk today because (1) the current U.S. financial regulatory system is not designed to adequately oversee today’s large and interconnected financial institutions, (2) not all financial activities and institutions fall under the direct purview of financial regulators, and (3) market innovations have led to the creation of new and sometimes complex products that were not envisioned as the current regulatory system developed. Credit default swaps (CDS) are one of the products that have assumed a key role in financial markets.
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