Davis Polk & Wardwell Client Alert

Financial Crisis Inquiry Commission

May 15, 2009

The Congress is moving towards establishing a “Financial Crisis Inquiry Commission” to examine the causes of (1) the U.S. financial crisis and (2) the collapse of each major financial institution that failed or would have failed but for the receipt of Government assistance.

Among the specific topics to be examined by the Commission are:

  • fraud and abuse in the financial sector;
  • capital requirements and regulations on leverage and liquidity;
  • lending practices and securitization;
  • the availability and terms of credit;
  • the quality of diligence undertaken by financial institutions;
  • derivatives and unregulated financial products and practices; and
  • compensation structures.

The current legislation directs that the Commission will have ten members, none of them current government officials.  Six members will be appointed by Congressional Democrats and four by Congressional Republicans.

The Commission will have the authority to subpoena witnesses and documents, hold hearings, and take testimony.  It must report its findings on December 15, 2010 and is directed to refer any potential violations of law to appropriate federal or state authorities.

Pecora Commission. The most notable precedent is the Pecora Commission, a Senate subcommittee that held hearings between 1932 and 1934.  These Depression-era hearings sought to expose banking practices deemed “detrimental to the public welfare” and to reveal “unsavory and unethical methods” used in the sale of securities.  The Pecora Commission was intended to lay the foundation for remedial legislation.  During the course of its investigation, Congress enacted the Banking Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934.

9/11 Commission. The form and powers of the Financial Crisis Inquiry Commission are similar to the National Commission on Terrorist Attacks Upon the United States (“9/11 Commission”).  The 9/11 Commission’s members and staff:

  • interviewed more than 1,200 people in ten countries;
  • held twelve days of public hearings;
  • reviewed more than 2.5 million pages of documents; and
  • issued a 567-page report and recommendations.

* * *

If you have questions regarding this alert, please contact any of the lawyers listed below or your regular Davis Polk contact.

Carey R. Dunne, Partner
212-450-4158 | carey.dunne@dpw.com

William J. Fenrich, Partner
212-450-4549 | william.fenrich@dpw.com

Randall D. Guynn, Partner
212-450-4239 | randall.guynn@dpw.com

Annette L. Nazareth, Partner*
202-962-7075 | annette.nazareth@dpw.com

Jennifer G. Newstead, Partner
212-450-4999 | jennifer.newstead@dpw.com

Margaret E. Tahyar, Partner 
+33-1-56-59-36-70 | margaret.tahyar@dpw.com

Raul F. Yanes, Partner*
202-962-7122 | raul.yanes@dpw.com


* Admission pending in DC; practicing in DC under the supervision of partners of the firm. 

Davis Polk & Wardwell