Exact(8)
It revealed banks' huge exposures to the US mortgage market – large parts of which turned out to be bust.
Even then, supervisors missed the huge exposures being taken on by AIG, an insurer, in over-the-counter trades.
Now there is much hand-wringing over the fact that banks have huge exposures to Greece and other peripheral euro zone countries, and must raise large amounts of new capital.
During the real-estate bubble that lasted from 2003 to 2007, many of the big banks drove themselves to the brink of bankruptcy by building up huge exposures to an overvalued market through the issuance of derivative securities known as credit-default swaps.
That makes sense: the only big insurer to blow up in the crisis was American International Group (AIG), which got a $182 billion bail-out in 2008 because a berserk subsidiary built up huge exposures to American subprime mortgages.But it is not clear which activities the FSB considers core and which it thinks are too racy for insurers.
Shares in European banks were hit badly last week over fears that we are heading for a second stage of the banking crisis because of huge exposures to the eurozone's sovereign debt and whether this will be repaid if the crisis spreads.
The Germans did not spot the huge exposures to off-balance-sheet entities at various Landesbanks, and the Swiss missed the grenades strapped to UBS's investment-banking arm.Following the Northern Rock affair, the reputation of Britain's Financial Services Authority FSAA) has taken the biggest knock of all the regulators.
Merrill has been caught, like Lehman, with huge exposures to mortgages and mortgage securities, though it has aggressively moved to unload those from its books in recent weeks.
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