NEW YORK (MNI) – The following is the fifth of seven sections
of Federal Reserve Chairman Ben Bernanke’s remarks titled “Rethinking
Finance: Perspectives on the Crisis” prepared for the Russell Sage
Foundation and The Century Foundation:
Conclusion
The financial crisis of 2007-09 was difficult to anticipate for two
reasons: First, financial panics, being to a significant extent
self-fulfilling crises of confidence, are inherently difficult to
foresee. Second, although the crisis bore some resemblance at a
conceptual level to the panics known to Bagehot, it occurred in a rather
different institutional context and was propagated and amplified by a
number of vulnerabilities that had developed outside the traditional
banking sector. Once identified, however, the panic could be addressed
to a significant extent using classic tools, including backstop
liquidity provision by central banks, both here and abroad.
To avoid or at least mitigate future panics, the vulnerabilities
that underlay the recent crisis must be fully addressed. As you know,
this process is well under way at both the national and international
levels. I will have to leave to another time a discussion of the
extensive changes in regulatory frameworks, as well as the changes in
the Federal Reserve’s own organization and practices, that have been or
are being put in place. Instead, I will close by noting that the events
of the past few years have forcibly reminded us of the damage that
severe financial crises can cause. Going forward, for the Federal
Reserve as well as other central banks, the promotion of financial
stability must be on an equal footing with the management of monetary
policy as the most critical policy priorities.
Footnotes follow
-more- (5 of 7}
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