GAO - Government Accountability Office - Snippets
- Most state insurance regulators generally only conduct investigations of insurance company sales practices when they receive customer complaints.
- Although some state insurance regulators review insurance companies’ product sales practices as part of market conduct reviews, few insurance products are subject to any suitability or appropriateness standards. (p11)
2005 11 - GAO - Financial Product Sales: Actions Needed to Better Protect Military Members, Government Accountability Office - 88p
- 1994 03 - GAO - International Banking: Strengthening the Framework for Supervising, International Banks, Government Accountability Office --- 82p --- [link]
- Systemic Failure: Ultimate Fear of Supervisors - (p19)
- As banking activities become increasingly global in nature, problems in one bank or banking group can be detrimental to financial entities in multiple countries.
- “Systemic crisis” is a disruption that severely damages the operation of the financial system either within a country or across country borders and, at the extreme, causes the system to break down completely.
- A typical form of financial crisis occurs when the sudden failure of a financial institution leads to a lack of confidence not only in the failed firm, but also in any of its other financial institutions thought to have similar vulnerabilities.
- Investors, in turn, refuse to deal with these other financial institutions.
- Creditors demand immediate payment, causing a liquidity problem not only with the original firm, but also among its other financial institutions, threatening the entire group’s solvency if the situation is not resolved quickly.
- Several factors have increased the potential for systemic failure in international banking.
- Greater linkages exist between various markets as banks interact with nonbank financial institutions, including investment banks and insurance companies domestically and across borders.
- These linkages increase the potential for problems to spread across a wider range of institutions and countries.
- Such linkages are evident as banks deal more in off-balance-sheet activities,7 including derivative instruments.
- Although derivative instruments are used to reduce risk through hedging,8 they sometimes involve complex transactions with many other individuals and institutions referred to as “counterparties.”
- Some international finance experts have expressed concern that failure of one counterparty to honor its commitments may affect the ability of the other counterparties to honor their commitments.
- Opinions differ on whether this action could cause a systemic crisis.
- The task of identifying and evaluating the creditworthiness of counter-parties has been made more difficult by the complexity of the financial instruments and the multiple markets they affect.
- Uncertainty about any one of the counter-parties’ ability to resolve a liquidity crisis can cause other counterparties to refuse to lend to an illiquid but solvent institution, thereby leading to actual insolvency and failure.
- As banking activities become increasingly global in nature, problems in one bank or banking group can be detrimental to financial entities in multiple countries.