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 DISSENTING STATEMENT

holding too little capital and having insufficiently robust access to liquidity.
Many placed their firms on a hair trigger by becoming dependent upon short-
term financing from commercial paper and repo markets for their day-to-day
funding. They placed failed solvency bets that their housing investments were
solid, and failed liquidity bets that overnight money would always be there no
matter what. In several cases, failed solvency bets triggered liquidity crises,
causing some of the largest financial firms to fail or nearly fail.

“Investment banks caused the crisis”
A persistent debate among members of the Commission was the relative importance
of a firm’s legal form and regulatory regime in the failures of large financial institu-
tions. For example, Commissioners agreed that investment bank holding companies
were too lightly (barely) regulated by the SEC leading up to the crisis and that the
Consolidated Supervised Entities program of voluntary regulation of these firms
failed. As a result, no regulator could force these firms to strengthen their capital or
liquidity buffers. There was agreement among Commissioners that this was a con-
tributing factor to the failure of these firms. The Commission split, however, on
whether the relatively weaker regulation of investment banks was an essential cause
of the crisis.
Institutional structure and differential regulation of various types of financial in-
stitutions were less important in causing the crisis than common factors that spanned
different firm structures and regulatory regimes. Investment banks failed in the
United States, and so did many commercial banks, large and small, despite a stronger
regulatory and supervisory regime. Wachovia, for example, was a large insured de-
pository institution supervised by the Fed, OCC, and FDIC. Yet it experienced a liq-
uidity run that led to its near failure and prompted the first-ever invocation of the
FDIC’s systemic risk exception. Insurance companies failed as well, notably AIG and
the monoline bond insurers.
Banks with different structures and operating in vastly differing regulatory
regimes failed or had to be rescued in the United Kingdom, Germany, Iceland, Bel-
gium, the Netherlands, France, Spain, Switzerland, Ireland, and Denmark. Some of
these nations had far stricter regulatory and supervisory regimes than the United
States. The bad loans in the United Kingdom, Ireland, and Spain were financed by
federally-regulated lenders–not by “shadow banks.”
Rather than attributing the crisis principally to differences in the stringency of
regulation of these large financial institutions, it makes more sense to look for com-
mon factors:

• Different types of financial firms in the United States and Europe made highly
concentrated, highly correlated bets on housing.
• Managers of different types of financial firms in the United States and Europe
poorly managed their solvency and liquidity risk.