Government Policies and The Subprime Mortgage Crisis - Enforcement of Laws and Regulations

Enforcement of Laws and Regulations

Many existing laws and regulations were not effectively enforced prior to the crisis. The SEC was criticized for relaxing investment bank oversight and requiring inadequate risk disclosures by banks. The FDIC allowed banks to shift large amounts of liabilities off-balance sheet, thereby circumventing depository banking capital requirements. The Federal Reserve was criticized for not properly monitoring the quality of mortgage originations. Once the crisis hit its critical stage in September 2008, the regulators did not consistently apply remedies available to them, thereby increasing uncertainty. A primary example was allowing the demise of investment bank Lehman Brothers in September 2008, despite the Fed and Treasury Department facilitating a rescue/merger for Bear-Stearns in March 2008 and the Merrill-Lynch merger with Bank of America in September 2008.