Ross Professor Warns Congress About Danger of a New Economic Collapse
Michigan Ross Professor Jeremy Kress has warned about the dangers of failing to properly regulate nonbank financial institutions. At 10 a.m. Thursday, he’s scheduled to deliver that message to the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs.
Tom Lyon, professor of business economics and public policy and of environment and sustainability, spoke before the U.S. House Committee on Transportation and Infrastructure this week about ways he believes infrastructure improvement, as well as the free market, can help lessen the impacts of climate change.
The core issue is the Financial Stability Oversight Council’s responsibility to oversee financial institutions that are not banks, such as insurance and mortgage companies. The failure of some of these institutions led directly to the 2008 financial crisis.
An important tool to oversee these companies is designating individual firms as systemically important financial institutions (SIFI). Kress argues that abandoning SIFI designations of these companies risks another broad economic collapse.
“Recent proposals to de-emphasize or eliminate nonbank SIFI designations—either formally or through onerous procedural requirements—ignore the unique ways in which SIFI designations can prevent catastrophic nonbank failures,” Kress said in a written summary of his remarks to the committee. “Nonbank SIFI designations are therefore essential to mitigate nonbank systemic risk and prevent the next Bear Stearns, Lehman Brothers, or AIG from triggering another financial crisis.”
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