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LATE TO EARLY : BILLIONS IN SUBPRIME LOSSES
COMMISSION CONCLUSIONS ON CHAPTER 14
The Commission concludes that some large investment banks, bank holding
companies, and insurance companies, including Merrill Lynch, Citigroup, and
AIG, experienced massive losses related to the subprime mortgage market be-
cause of significant failures of corporate governance, including risk management.
Executive and employee compensation systems at these institutions dispropor-
tionally rewarded short-term risk taking.
The regulators—the Securities and Exchange Commission for the large invest-
ment banks and the banking supervisors for the bank holding companies and
AIG—failed to adequately supervise their safety and soundness, allowing them to
take inordinate risk in activities such as nonprime mortgage securitization and
over-the-counter (OTC) derivatives dealing and to hold inadequate capital and
liquidity.
