CHICAGO (Reuters) - Bank of America Corp BAC.N Chief Executive Kenneth Lewis on Thursday blamed much of the current credit crisis on lax regulation by state officials and said all "systemically important" financial institutions need some form of federal oversight.
Lewis said the crisis exposed inherent flaws in the structure of the giant government sponsored mortgage finance entities Fannie MaeFNM.N and Freddie Mac FRE.N, which he said were able to take on extra risk because of the implicit government backing they enjoyed as GSEs.
That support “led investors to believe there was no risk,” Lewis told the Executives Club of Chicago. “It was heads, investors win; tails, the taxpayers lose. We don’t think that’s a sustainable model.”
Lewis said the intermediary role played by Fannie and Freddie between mortgage originators and mortgage investors should be performed by truly private sector companies. The only role the government should play in that market, he said, is ensuring liquidity.
He also said that the crisis has proved how “inherently unstable” it is for financial institutions to rely on one line of business because, in times of crisis, they have been unable
to fund themselves without borrowing.
Reporting by James Kelleher, editing by Gerald E. McCormick
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