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Bernanke: Shut down banks if they threaten system
Bernanke: Shut down banks if they threaten system
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AP – Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Thursday, Sep. 2, 2010, … By MARCY GORDON, AP Business Writer Marcy Gordon, Ap Business Writer – Thu Sep 2, 1:50 pm ET
WASHINGTON – Federal Reserve Chairman Ben Bernanke told a panel investigating the financial crisis that regulators must be ready to shutter the largest institutions if they threaten to bring down the financial system.
"If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved," Bernanke said Thursday while testifying before the Financial Crisis Inquiry Commission.
Bernanke also said it was impossible for the Fed to rescue Lehman Brothers from bankruptcy in 2008 because the Wall Street firm lacked sufficient collateral to secure a loan. Lehman's former chief executive told the panel a day earlier that the firm could have been saved, but regulators refused to provide help.
The Fed chief presented his analysis of the crisis and views on potential systemwide risks as the panel approaches the end of its yearlong investigation into the Wall Street meltdown.
The financial overhaul law enacted this summer gives regulators the authority to shut down firms when their collapse poses a broader threat to the system. The process resembles the one used by the Federal Deposit Insurance Corp. to close failing banks.
FDIC Chairman Sheila Bair told the panel "the stakes are high" for regulators to effectively exercise their new powers.
If not, "we will have forfeited this historic chance to put our financial system on a sounder and safer path in the future," Bair said. "The tools are there. The regulators have to use them," she testified.
Panel Chairman Phil Angelides said the new law will be an enormous test of will of the regulators.
Bair and Bernanke said tougher rules and market pressures will lead huge firms to voluntarily shrink themselves. Executives can no longer count on the government to bail them out if they veer toward failure, they said.
Bernanke said that bailing out these institutions is not a healthy solution and great improvement will come from the new law.
"Too-big-to-fail financial institutions were both a source ... of the crisis and among the primary impediments to policymakers' efforts to contain it," Bernanke said.
"We should not imagine ... that it is possible to prevent all crises," he said. "To achieve both sustained growth and stability, we need to provide a framework which promotes the appropriate mix of prudence, risk-taking and innovation in our financial system."
Bernanke led the economy through the financial crisis and the worst recession since the 1930s. The Federal Reserve took extraordinary measures to inject hundreds of billions into the battered financial system.
Last week he said the central bank is prepared to make a major new investment in government debt or mortgage securities if the economy worsened significantly.
Members of the congressionally appointed panel have questioned the government's decision to let Lehman fall while injecting billions of dollars into other big financial institutions during the crisis.
Former Lehman CEO Richard S. Fuld Jr. testified Wednesday that the firm could have been rescued. But the regulators refused to help — even though they later bailed out other big banks.
Bernanke disagreed. He said bailing out Lehman would have saddled the taxpayers with billions of dollars in losses.
"It was with great reluctance and sadness that I conceded there was no other option" than allowing Lehman to fail, he said.
Asked how the Lehman case differed from that of American International Group Inc., which received $182 billion in taxpayer aid, Bernanke said there was a fundamental difference.
AIG, as the biggest insurance company in the U.S., had valuable assets which could back up the Fed's emergency loan, he said.
"The Federal Reserve will absolutely be paid back by AIG," Bernanke said.
Buzz up!98 votes ShareretweetEmailPrint Play Video CNBC – Bernanke Makes Headlines
Slideshow:Ben Bernanke Play Video Video:The Fed Exit Interview CNBC Related Quotes Symbol Price Change
^DJI 10,320.10 +50.63
^GSPC 1,090.10 +9.81
^IXIC 2,200.01 +23.17
AP – Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill in Washington, Thursday, Sep. 2, 2010, … By MARCY GORDON, AP Business Writer Marcy Gordon, Ap Business Writer – Thu Sep 2, 1:50 pm ET
WASHINGTON – Federal Reserve Chairman Ben Bernanke told a panel investigating the financial crisis that regulators must be ready to shutter the largest institutions if they threaten to bring down the financial system.
"If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved," Bernanke said Thursday while testifying before the Financial Crisis Inquiry Commission.
Bernanke also said it was impossible for the Fed to rescue Lehman Brothers from bankruptcy in 2008 because the Wall Street firm lacked sufficient collateral to secure a loan. Lehman's former chief executive told the panel a day earlier that the firm could have been saved, but regulators refused to provide help.
The Fed chief presented his analysis of the crisis and views on potential systemwide risks as the panel approaches the end of its yearlong investigation into the Wall Street meltdown.
The financial overhaul law enacted this summer gives regulators the authority to shut down firms when their collapse poses a broader threat to the system. The process resembles the one used by the Federal Deposit Insurance Corp. to close failing banks.
FDIC Chairman Sheila Bair told the panel "the stakes are high" for regulators to effectively exercise their new powers.
If not, "we will have forfeited this historic chance to put our financial system on a sounder and safer path in the future," Bair said. "The tools are there. The regulators have to use them," she testified.
Panel Chairman Phil Angelides said the new law will be an enormous test of will of the regulators.
Bair and Bernanke said tougher rules and market pressures will lead huge firms to voluntarily shrink themselves. Executives can no longer count on the government to bail them out if they veer toward failure, they said.
Bernanke said that bailing out these institutions is not a healthy solution and great improvement will come from the new law.
"Too-big-to-fail financial institutions were both a source ... of the crisis and among the primary impediments to policymakers' efforts to contain it," Bernanke said.
"We should not imagine ... that it is possible to prevent all crises," he said. "To achieve both sustained growth and stability, we need to provide a framework which promotes the appropriate mix of prudence, risk-taking and innovation in our financial system."
Bernanke led the economy through the financial crisis and the worst recession since the 1930s. The Federal Reserve took extraordinary measures to inject hundreds of billions into the battered financial system.
Last week he said the central bank is prepared to make a major new investment in government debt or mortgage securities if the economy worsened significantly.
Members of the congressionally appointed panel have questioned the government's decision to let Lehman fall while injecting billions of dollars into other big financial institutions during the crisis.
Former Lehman CEO Richard S. Fuld Jr. testified Wednesday that the firm could have been rescued. But the regulators refused to help — even though they later bailed out other big banks.
Bernanke disagreed. He said bailing out Lehman would have saddled the taxpayers with billions of dollars in losses.
"It was with great reluctance and sadness that I conceded there was no other option" than allowing Lehman to fail, he said.
Asked how the Lehman case differed from that of American International Group Inc., which received $182 billion in taxpayer aid, Bernanke said there was a fundamental difference.
AIG, as the biggest insurance company in the U.S., had valuable assets which could back up the Fed's emergency loan, he said.
"The Federal Reserve will absolutely be paid back by AIG," Bernanke said.
I'd really like to believe that we are through the worst of it. I read something yesterday that 2 million jobs have been lost since the stimulus package and that nationwide unemployment is at 9,6%. (I got it from an AP feed here at work)
I am with you on buying American products. 2 things concern me there though. Availablilty of good American products at fair prices. I think unions are screwing the pooch there and forcing otherwise American corporations to go over seas. The second thing being choice. Some product availability concerning American products is limited.
Our foreign trade policies wreak of corruption and bad decisions. We are living with trade policies that may have worked 20 years ago, but are crippling us now. This is some of the change I was hoping for. Im still hoping, and probably will be for the rest of my life.
I am with you on buying American products. 2 things concern me there though. Availablilty of good American products at fair prices. I think unions are screwing the pooch there and forcing otherwise American corporations to go over seas. The second thing being choice. Some product availability concerning American products is limited.
Our foreign trade policies wreak of corruption and bad decisions. We are living with trade policies that may have worked 20 years ago, but are crippling us now. This is some of the change I was hoping for. Im still hoping, and probably will be for the rest of my life.
I cannot disagree there, and I personally think restrictions with banks and wall street are not only good, but need even more tightening. We are also in the computer age. We will find more and more jobs centering around new technology. We should also quit buying anything other than american made, (know how hard that would be today?) But I think we will be okay, we are thru the worst of it all and recovery will be slow and painful for sure.
Another thing that would help is that if we wouldnt get our personal selves into a financial pinch like a mortgage we cannot afford. I find it numbing that people know how much money they are bringing home, and then land a mortgage that assumes 50% or better of those earnings......unbelievable.
The problem is, we need to wait and see what happens in time. We havent given this enough time to even really evaluate it and its effectiveness at this point. What I am seeing is, some of these bigger banks are conducting business as usual. Until that stops, things will not improve. Some of their lending practices still suck. Most of them wont loan a red cent now. In my community, its nearly impossible to get a construction loan, and unless you have about 50% to put down on a previously owned home, these institutions wont even look at you.
One of our banks is so underwater with foreclosures that it is struggling....and it was involved with the big bail out.
The business model has supposedly changed, but until the actual business practices change we can expect more of the same. Keep your eye on bank presidents and other high ranking officials. Pay close attention to their pay scale and bonuses. Like a lot of places in the country today, there is a sense of entitlement within this industry.
There are still a lot of honest, hard working individuals that are bent over the barrel with bad loans. Of course foreclosures will slow down.....they have to with time.
And I totally agree with you in regards of our financial being responsible for our entire economy. Its a bad idea.... there does need to be regulation there. Another thing is trading on futures..... and probably the worst thing affecting our nations economy is our trade policies. Our trade policies suck, for lack of a better word. 30 years or so ago, we were only 28%-30% dependant on foreign oil.... today were around 70%. Our gross national product is a mess and we simply are importing as much or close to as much as we are exporting. We are paying incredible tariffs with our exports..... our fiscal responsibility is terribly wounded.....
One of our banks is so underwater with foreclosures that it is struggling....and it was involved with the big bail out.
The business model has supposedly changed, but until the actual business practices change we can expect more of the same. Keep your eye on bank presidents and other high ranking officials. Pay close attention to their pay scale and bonuses. Like a lot of places in the country today, there is a sense of entitlement within this industry.
There are still a lot of honest, hard working individuals that are bent over the barrel with bad loans. Of course foreclosures will slow down.....they have to with time.
And I totally agree with you in regards of our financial being responsible for our entire economy. Its a bad idea.... there does need to be regulation there. Another thing is trading on futures..... and probably the worst thing affecting our nations economy is our trade policies. Our trade policies suck, for lack of a better word. 30 years or so ago, we were only 28%-30% dependant on foreign oil.... today were around 70%. Our gross national product is a mess and we simply are importing as much or close to as much as we are exporting. We are paying incredible tariffs with our exports..... our fiscal responsibility is terribly wounded.....
I think it was a necessary evil at the time, but now provisions should be set in place(as have been to some degree) to prevent this in the future. I am all for regulation to keep that from happening and I also agree that maybe they should not be allowed to get that big if it is going to affect our entire economy. As long as their actions only cause them to fall I have no problem with capitolism. When it infringes upon the rest of the economy, that is our business and leaves them susseptable to that government regulation. For our protection.
Hmmmm. I read something yesterday on aol, (I'll see if I can find a link to the story) from an economist that predicted potentially 400 more bank closures within the next 2 years. Does anyone think that the bank bailout was a crock of bull butter, or is it just me?
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