Global financial stability: Transatlantic responses to the subprime lending crisis
On October 19, the German Marshall Fund hosted a roundtable discussion on "Global Financial Stability - Transatlantic Responses to the Subprime Lending Crisis," with members of the German Bundestag representing the finance, budget and economic development committees, and a group of American and European financial experts.
At the event, Dr. Adam Posen, senior fellow and deputy director of the Peterson Institute for International Economics, and Professor Christian Weller, senior fellow at the Center for American Progress and professor of public policy at the University of Massachusetts, provided introductory remarks on the current state of global financial markets. The remarks were followed by a lively discussion around the U.S. subprime mortgage market, its impact on the global financial system, and potential transatlantic regulatory responses.
The discussion focused on several different, but related, issues. First, responding directly to the impact of the subprime issue on homeowners, several participants stressed the need for better regulation and increased consumer protection in retail financial markets, especially in the United States. Second, while drawing attention to the perceived failings of credit ratings agencies, some participants noted that these agencies were nonetheless being drawn into formal regulatory structures such as the Basel II Accord, by incorporating their ratings into regulatory analysis. It was argued that they were not well placed to fulfill this role, with the events of recent months demonstrating the limits of their analysis, and particularly a review of Basel II, was called for. Third, participants showed concern about the degree of institutional separation between central banks and bank supervisors in some countries.
An EU representative remarked that the European ECOFIN council has drafted conclusions in response to the lending crises focusing on the need for better financial transparency, better risk management supervision, and better functioning credit rating agencies. However, it was also argued that better transatlantic regulatory cooperation would be a key to solving and avoiding financial market crises in the future, especially if it was possible to jointly tackle liquidity risks.
The group also discussed how domestic policies could help ease credit crises, which tend to hit minority groups hardest. One speaker proposed to create functioning mortgage assistance policies to ease the credit crunch for poorer parts of the population and to modernize the Federal Housing Authority.