Managing the Impact of the Global Economic Crisis – Private Sector Perspectives on Regulation

1. Presentation1\A2XP\25 SEP 2009\2:58 PM\1 Managing the Impact of the Global Economic Crisis – Private Sector Perspectives on Regulation 2 October 2009 Gary G. Lynch Vice Chairman & Chief Legal Officer

2. Presentation1\A2XP\25 SEP 2009\2:58 PM\2 Origins of crisis • Securitization as catalyst for excessive lending, low interest rates and the deterioration of underwriting standards led to bubble. • Interconnectivity of credit risk in derivatives market in a panicked environment led to precipitous decline in liquidity. • Fragmented regulatory system failed to recognize warning signs (compounded by risk management failures within banks) and take appropriate preventative action. Notes 2

3. Presentation1\A2XP\25 SEP 2009\2:58 PM\2 Industry action • Restore confidence in securitization market through implementation of higher standards and better underwriting practices. • Build more robust market infrastructure for OTC Derivatives market including clearing of standardized products. • Raise level of high quality capital and decrease leverage. • Improve Internal Risk Management and compensation practices. • Notes 3

4. Presentation1\A2XP\25 SEP 2009\2:58 PM\2 Recommendations for CommonwealthGovernments • Establish systemic risk regulators which facilitate global regulatory cooperation and coordinated response. • Provide additional regulatory oversight of securitizations and OTC derivatives, including central clearing for OTC derivatives. • Increase capital requirements for banks and impose reductions in leverage. • Initiate effective resolution authority for insolvency of major institutions with goal of imposing minimal impact on stability of financial system. • Avoid balkanization of regulatory schemes and protectionist legislation. • Notes 4