Thursday, January 14, 2010
SEC Chair Mary Schapiro testified today before the Financial Crisis Inquiry Commission. Here is an excerpt of her testimony:
It is my view that the crisis resulted from many interconnected and mutually reinforcing causes, including:
The rise of mortgage securitization (a process originally viewed as a risk reduction mechanism) and its unintended facilitation of weaker underwriting standards by originators and excessive reliance on credit ratings by investors;
A wide-spread view that markets were almost always self-correcting and an inadequate appreciation of the risks of deregulation that, in some areas, resulted in weaker standards and regulatory gaps;
The proliferation of complex financial products, including derivatives, with illiquidity and other risk characteristics that were not fully transparent or understood;
Perverse incentives and asymmetric compensation arrangements that encouraged significant risk-taking;
Insufficient risk management and risk oversight by companies involved in marketing and purchasing complex financial products; and
A siloed financial regulatory framework that lacked the ability to monitor and reduce risks flowing across regulated entities and markets.
To assist the Commission in its efforts, my testimony will outline many of the lessons we have learned in our role as a securities and market regulator, how we are working to address them, and where additional efforts are needed. I look forward to working with the FCIC to identify the many causes of this crisis.