WASHINGTON — A for mer mortgage executive from Citigroup has accused bank executives of violating their own risk-management policies and ignoring his warnings about the coming financial crisis.
Richard Bowen on Wednesday told a panel investigating the roots of the crisis that he raised concerns about mortgage risk starting in 2006. He said he sent an e-mail about it to former chairman Robert Rubin and others in November 2007.
Bowen sent weekly messages to managers raising concerns about his group’s risk management. But he wrote to Rubin and other executives in 2007, “These breakdowns have not been communicated to or recognized by” Citi’s top audit or finance executives.
Bowen said at the hearing that he doesn’t know whether any executives acted on his warnings about the bank’s purchase of suspect mortgages.
In testimony to the Financial Crisis Inquiry Commission, Bowen said he discovered in mid-2006 that more than 60 percent of the mortgages bought and resold by subprime subsidiary Citi financial Mortgage didn’t meet Citigroup’s underwriting standards.
Earlier Wednesday, Alan Greenspan defended his tenure as head of the Federal Reserve in the years leading up to the crisis.
Greenspan disputed critics who say he kept interest rates too low for too long, encouraging risky lending.
He also rejected criticism that he failed to regulate high-risk loans to borrowers who couldn’t afford the debt. Many of those loans became the toxic assets that sparked the crisis.
Greenspan insisted the Fed lacked authority to regulate the nonbank lenders that issued most subprime mortgages.
Regarding his own missteps over his two decades as Fed chair, Greenspan said, “I was wrong 30 percent of the time, and there were an awful lot of mistakes in 21 years.”
He wouldn’t cite specific failures, except banks’ and regulators’ collective failure to anticipate that so many challenges would hit the financial system at once. Greenspan said future credit crises will be prevented only if banks:
• Are required to hold more capital as a buffer against future loan losses.
• Are forced to keep more cash-like assets instead of investments that can be hard to sell.
• Are required to hold more collateral to protect against default.
