Relative performance of banking and insurance through the financial crisis.

摘要

Within the financial services sector of the U.S. economy, commercial banking and insurance have broadly similar operating models, are subject to similar regulatory scrutiny and, over the last 20 years, have gone through a period of consolidation. Not surprisingly, the two industries experienced virtually identical average failure rates over the 35 years prior to the financial crisis of 2008. While elements of the profitability of both industries are pro-cyclical, their failure rates have not tended to be associated with broad economic cycles. Despite these historic similarities, the two performed very differently in the financial crisis, with large banks requiring extraordinary efforts by multiple agencies within the federal government to avoid failure. We identify 12 main reasons for this divergence, loosely arranged into four categories: financial, incentive structures, behavioral and regulatory. Our analysis leads to three main hypotheses: I. Regulatory capture played a key role in positioning the commercial banks for a crisis. II. For the largest commercial banks, the banking model has changed, creating risks and exposures inadequately addressed by current regulatory and accounting regimes. III. The fractured nature of the regulatory environment created gaps in responsibility and accountability, decreasing the effectiveness of regulations and regulators in both industries.;We also explore post-crisis developments, including some of the strengths and weaknesses of The Dodd-Frank Wall Street Reform and Consumer Protection Act. Finally, we offer a series of recommendations designed to curtail future crises in these vital industries.