Perspectives on Systemic Risk

Today, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, held the first in a series of hearings to examine how to improve the ability of the government to prevent private sector activities from putting at risk the stability of the U.S. economy. The hearing will assist the Financial Services Committee in crafting legislation to create a systemic risk regulator for the financial services industry.

In his opening statement, Chairman Paul E. Kanjorski (D-PA) explains:

We meet today to discuss the issue of systemic risk. The bailout of American International Group, the bankruptcy of Lehman Brothers, and the takeover of Bear Stearns each demonstrate that systemic risk is not just confined to the banking sector. We therefore will focus our examinations at this hearing on insurance, securities, and capital markets issues.

The ongoing turmoil in our financial markets has led us to a crossroads. Because our current regulatory regime has failed, we must now design a robust, effective supervisory system for the future. In doing so, we must move expeditiously in order to help restore confidence in our markets and to get our economy moving again.

Read prepared testimony>>

Watch video highlights:

Chairman Kanjorski: "The ongoing turmoil in our financial markets has led us to a crossroads. Because our current regulatory regime has failed, we must now design a robust, effective, supervisory system for the future. In doing so, we must move expeditiously in order to help restore confidence in our markets and to get our economy moving again. We must however, also move carefully and take time to do it right."

Rep. Maloney: "Could we have prevented the crisis that we are in now, our current economic crisis? Do you think that it could have been avoided or mitigated if a systemic risk regulator had been in place during that period? What I find so upsetting is that 9/11, which was another crisis in our country, I truly do not believe we could have prevented it. But we could have prevented the financial meltdown that we are in today with better regulation and more responsible oversight."

Rep. Ackerman: "I just want to respond to some of the things some of my colleagues have put forth as statements or theory or postulates in saying that the problem that we face really is that there's too much regulation. I would just like to analogize that if we had a superhighway system for use of mixed vehicles, cars, trucks, etc, and there were speed regulations and nobody was enforcing the speed regulations because the state police just neglected to patrol or find anybody who was speeding. And suddenly, systemically, the entire highway is filled with crashes and carnage. Is the problem A) that there are speed requirements, B) the police are not patrolling, or C) the people trying to figure it out are from outer space?"

Rep. Bean: "Is it your opinion that the insurance subsidiaries of AIG are solvent, and if that is the case, why has the latest round of federal dollars gone to the life insurance side of the business?...So you're saying the latest round of money going to the insurance companies isn't necessary? The 30 billion dollars additionally is necessary for the insurance companies?"