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FDIC Chair Sheila Bair: Government, Banks Suffer From 'Short-Termism'

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FDIC CHAIR

Sheila Bair, outgoing chair of the Federal Deposit Insurance Corp., said on Friday that the American government and financial system are in danger of forgetting the lessons of the 2008 financial crisis, according to The Wall Street Journal.

Bair, who plans to step down as FDIC chair on July 8, said that some leaders in finance and government are suffering from a case of "short-termism": a focus on reaping short-term gains at the expense of maintaining long-term economic stability.

"The alternative is to risk another financial crisis that could someday throw millions of people out of work and wreck our public finances," she said, according to The Wall Street Journal.

Banks recently have been pouring money into lobbying against the implementation of the Dodd-Frank Act, which imposes more limits on financial institutions. Congressional Republicans also have hardened their push to weaken the Dodd-Frank Act, with U.S. Representative Michele Bachmann even introducing a bill that would repeal it altogether.

Key regulators, most prominently the Securities and Exchange Commission, have also have made concessions, delaying and watering down rules set to be imposed on the derivatives market and hedge funds.

Bair, like Elizabeth Warren, has called for better laws to rule over risk-prone banks, in order to maintain economic peace.

"The history of the crisis shows many examples when regulators acted too late, or with too little conviction, when they failed to use authorities they already had or failed to ask for the authorities they needed to fulfill their mission," she said in late May. "As the crisis developed, too many in the regulatory community were too slow to acknowledge the danger, and were too slow to act in addressing it."

Bair also suggested in April that the United States follow a British proposal to solve the problem of too-big-to-fail financial institutions. She said she would like the FDIC to follow the same proposal and section off the risk-prone investment banking portion of banks from the section of banks that lend to retailers and consumers.

More recently, however, she has focused on the issue of requiring banks to hold a certain amount of capital in case of an emergency, warning that European capital requirements do not go far enough, particularly since some European countries are facing debt crises and banks are exposed to that debt. She said it is "troubling" that European banks "continue to effectively set their own capital requirements using internal risk estimates, unconstrained by any objective hard limits."

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