On January 27, the Financial Crisis Inquiry Commission (FCIC) issued its final report on the 2007-2008 financial crisis. The FCIC, created in 2009 pursuant to the Fraud Enforcement and Recovery Act, Public Law 111-21, reached six general conclusions in the majority report: (1) the crisis was avoidable; (2) “widespread failures in financial regulation and supervisionproved devastating to the stability of the nation’s financial markets”; (3) “dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis”; (4) “a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis”; (5) “the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets”; and (6) “there was a systemic breakdown in accountability and ethics.”
The majority report also reached three conclusions with respect to specific components of the financial system: (1) “collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis”; (2) “over-the-counter derivatives contributed significantly to this crisis”; and (3) “the failures of credit rating agencies were essential cogs in the wheel of financial destruction.” Finally, the majority report concluded that “the failures of credit rating agencies were essential cogs in the wheel of financial destruction.” Four FCIC members filed dissenting views.
On February 16, members of the U.S. House Financial Services Committee reportedly divided along partisan lines in supporting or criticicing the FCIC report. According to the Los Angeles Times, “[o]nly Democrats supported the panel’s majority findings, which cast blame widely among regulators, corporate executives and consumers for a crisis deemed avoidable.”
This post was originally published on the legacy ABA Section of Administrative Law and Regulatory Practice Notice and Comment blog, which merged with the Yale Journal on Regulation Notice and Comment blog in 2015.