The FDIC published a review of its response to the financial crisis and subsequent interconnected banking crisis. The review, titled "Crisis and Response: An FDIC History, 2008-2013," focused on the origins of the crisis and "the FDIC's use of emergency authorities to respond to financial market illiquidity and the problems of systemically important financial institutions." The FDIC also examined its responses to the challenges of bank supervision, deposit insurance, and failed-bank resolution immediately after the financial crisis.
Specifically, the FDIC considered the problems presented by the highly concentrated, interconnected and opaque nature of the banking system. The FDIC highlighted the "unprecedented" actions it took to guarantee bank debt and provide an unlimited deposit insurance guarantee. The FDIC asserted further that it provided "extraordinary support" for financial institutions to prevent their failure. With regard to the banking crisis, the FDIC described risks associated with bank supervision, management of the Deposit Insurance Fund, and resolution for failed banks between 2008 and 2013.
The FDIC also shared lessons learned from the banking crisis, including the importance of (i) readiness planning, (ii) offering more resolution and financing options to acquirers, (iii) using national servicers for large-scale crises in readiness plans and (iv) overseeing loss-share agreements. The FDIC noted that structured sales, in particular, worked well as a means to sell retained assets during the crisis.
Commentary/ Steven Lofchie
The FDIC's new publication is a useful retrospective on the financial crisis. As with almost any "history," this document must also be understood to reflect the institutional interests of the historians. One "historical" reading of the crisis seems a great and overdue advance: the FDIC expressly recognized that the primary driver of the financial crisis was the housing market (and that financial derivatives played a very, very, very secondary role). As stated: "The U.S. financial crisis of 2008 followed a boom and bust cycle in the housing market . . . characterized by loose credit, rampant speculation, and general exuberance. . . ." This narrative reads a lot closer to the minority view in the Financial Crisis Inquiry Commission study than it does to the majority view. See, in particular, the dissenting view of Peter Wallison, beginning on page 441 of that report, particularly his discussion of "What Caused the Financial Crisis" starting on page 444. Perhaps this review will be the start of a more genuine assessment of the financial crisis (rather than one that seems primarily intended to deflect blame). If so, it might mark the beginning of a process to remediate the damage done to the economy by regulations that were more intended to divert attention from problems rather than to fix them.
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