ECONOMIC REPORT OF THE PRESIDENT

peak above 200 in the fall of 2008 to below 80 in Fall 2016, a level below the
17-year pre-crisis average of approximately 100 (Figure 6-25).
Measures of housing-market health, the sector in which the financial
crisis began, have also improved. The Case-Shiller national index of house
prices has regained almost all of the ground it lost during the crisis (Figure
6-4).
Mortgage lending has stabilized. The four-quarter moving average of
mortgage originations for new home purchases fell from a pre-crisis peak
of $381 billion in 2006:Q1 to a trough of $117 billion in 2011:Q2 (Figure
6-26). Since then, mortgage originations have risen steadily to $245 billion
in 2016:Q3.
For existing loans, the fraction of mortgages with payments more than
90 days past due or in foreclosure continues to fall from the peak during the
crisis. Mortgage payments more than 90 days past due have fallen steadily
from a peak of 5.0 percent in 2010:Q1 to 1.4 percent in 2016:Q3. The fraction
of mortgages in foreclosure has also fallen steadily from a peak of 4.6
percent in 2010:Q4 to 1.6 percent in 2016:Q3 (Figure 6-27). Both measures
of troubled mortgages, suggest substantial progress since the crisis.
One of the most important functions of capital markets is to facilitate
the formation of capital for business. Businesses have raised record amounts
in the capital markets as corporate bond issuance has risen above pre-crisis
levels (Figure 6-28).
Conclusion
The financial crisis revealed a number of fault lines in the U.S.
financial system. Banks were inadequately capitalized, did not have enough
liquidity, and took too many risks. Non-bank financial firms faced many of
the same risks as banks, but lacked the same regulatory supervision or protection
against runs. In addition, gaps in the regulatory architecture meant
that financial regulators lacked a holistic view of the risks in the system.
The Administration has taken numerous steps to make the financial
system safer, most of all through the Dodd-Frank Act, which has helped
correct a number of market failures that arose in financial markets during
the crisis. It helps generate safety and soundness of financial markets by
requiring that banks hold more capital, have adequate liquidity, and do not
take excessive risk because they have access to government deposit insurance
or access to emergency liquidity provision from the Federal Reserve.
Dodd-Frank takes steps to limit systemic risk by bringing unregulated parts
of the financial system that were effectively performing banking functions
without the necessary backstops or regulation under a regulatory umbrella.
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