WASHINGTON (5/10/10)—The Government Accountability Office (GAO) Friday released results of a 2009 study of the role of leverage in the recent financial crisis and federal oversight of leverage. The results focus on three areas:
* How leveraging and de-leveraging by financial institutions may have contributed to the crisis; * How federal financial regulators limit the buildup of leverage; and * Limitations the crisis has revealed in regulatory approaches used to restrict leverage and regulatory proposals to address them.
The GAO made two recommendations. First, it backed the merit of establishing systemwide leverage oversight to a single regulator. Second, the GAO recommended that as Federal bank regulators assess the extent to which reforms under Basel II, the new risk-based capital framework, would address “risk evaluation and regulatory oversight concerns associated with advanced modeling approaches used for capital adequacy purposes.” Use the resource link to read the report.