1. Regulators’ Response: Crisis Framework by John Bovenzi
Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis
November 13-16, 2011
JODHPUR, INDIA

2. Table of Contents Key Factors Leading to the Crisis
Erosion of regulatory standards
Structural weaknesses
Today’s Policy Agenda
Strengthen supervision and regulation
Address systemic risk
Looking Forward

3. Key Factors Leading to the Crisis: Erosion of Regulatory Standards
Weak Capital Standards/High Leverage
Amounts, quality and cyclicality of capital
Weak Liquidity Standards
High levels of uninsured short-term funding susceptible to panic
Deposit insurance is a necessary, but not a sufficient condition
Weak Underwriting Standards
Low down payments, weak documentation, etc. fuel excessive lending and housing bubble
Consumer, business and government debt levels
Fuels boom-to-bust cycles

4. Key Factors Leading to the Crisis: Structural Weaknesses
Complexity, Lack of Transparency
Lack of trust contributes to panic
Inability to differentiate between institutions
New market instruments contribute to the downward spiral in the value of collateral once the bubble bursts
Gaps in Financial Regulatory Oversight
Shadow banking system – MMMFs, SIVs, etc.
Interdependencies/Systemic risk

5. Today’s Policy Agenda (1)
Strengthen Bank Supervision/Regulation
Capital standards, Liquidity standards
Volcker rule
Consumer/Investor protection
Address Systemic Risk
Systemic risk regulator
Higher regulatory standards for SIFIs
Develop effective bank resolution mechanisms
Better cross border coordination
Central clearing houses for OTC derivatives

6. Today’s Policy Agenda (2)
Enhance Market Discipline
Greater transparency
End Too-Big-To-Fail
Housing Reform?
Government support for Fannie/Freddie
Loan Modifications/ Foreclosures

7. Looking Forward
We are at the early stages of financial reform implementation – unclear whether long-term or short-term perspectives will prevail
There will be many unintended consequences as reform measures are implemented
One likely result will be a smaller, more expensive, financial system
Financial crises will remain a fact of life
Regulators will need sufficient authority and flexibility to deal with these events