Pathology of a Crisis

[elleng]

The coroner’s report left no doubt as to the cause of death: toxic loans. . .

In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses.

At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. . .

Regulators have begun to act on some of the lessons learned. Federal officials are discussing whether to impose hard limits, not just soft guidelines, on the portion of bank balance sheets that can be made up of commercial real estate loans. That would automatically prevent the buildup of risky assets and take more discretion out of the examiners’ hands.

Other ideas include requiring all lenders to hold more capital if they report big concentrations of risky assets or rapid loan growth — an approach that is the centerpiece of the Obama administration’s policy for too-big-to-fail banks.


http://www.nytimes.com/2009/11/19/business/19risk.html?hp