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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

Douglas Roeder, the OCC’s senior deputy comptroller for Large Bank Supervision
from  to , said that the regulators were hampered by inadequate informa-
tion from the banks but acknowledged that regulators did not do a good job of inter-
vening at key points in the run-up to the crisis. He said that regulators, market
participants, and others should have balanced their concerns about safety and sound-
ness with the need to let markets work, noting, “We underestimated what systemic
risk would be in the marketplace.” 
Regulators also blame the complexity of the supervisory system in the United
States. The patchwork quilt of regulators created opportunities for banks to shop for
the most lenient regulator, and the presence of more than one supervisor at an organ-
ization. For example, a large firm like Citigroup could have the Fed supervising the
bank holding company, the OCC supervising the national bank subsidiary, the SEC
supervising the securities firm, and the OTS supervising the thrift subsidiary—creat-
ing the potential for both gaps in coverage and problematic overlap. Successive Treas-
ury secretaries and Congressional leaders have proposed consolidation of the
supervisors to simplify this system over the years. Notably, Secretary Henry Paulson
released the “Blueprint for a Modernized Financial Regulatory Structure” on March
, , two weeks after the Bear rescue, in which he proposed getting rid of the
thrift charter, creating a federal charter for insurance companies (now regulated only
by the states), and merging the SEC and CFTC. The proposals did not move forward
in . 

COMMISSION CONCLUSIONS ON CHAPTER 16

The Commission concludes that the banking supervisors failed to adequately and
proactively identify and police the weaknesses of the banks and thrifts or their
poor corporate governance and risk management, often maintaining satisfactory
ratings on institutions until just before their collapse. This failure was caused by
many factors, including beliefs that regulation was unduly burdensome, that fi-
nancial institutions were capable of self-regulation, and that regulators should not
interfere with activities reported as profitable.
Large commercial banks and thrifts, such as Wachovia and IndyMac, that had
significant exposure to risky mortgage assets were subject to runs by creditors
and depositors.
The Federal Reserve realized far too late the systemic danger inherent in the
interconnections of the unregulated over-the-counter (OTC) derivatives market
and did not have the information needed to act.