2012.04.13 - Bernanke Says Promoting Financial Stability Is Key Fed Role - Bloomberg
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2012.04.13 - Bernanke Says Promoting Financial Stability Is Key Fed Role - Bloomberg

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13/04/12 15:30Bernanke Says Promoting Financial Stability Is Key Fed Role - Bloomberg

Página 1 de 3http://www.bloomberg.com/news/2012-04-13/bernanke-urges-greater-focus-on-promoting-financial-stability.html


Ben S. Bernanke, chairman of the U.S.
Federal Reserve. Photographer: Andrew

Bernanke Says Promoting Financial
Stability Is Key Fed Role
By Joshua Zumbrun and Daniel Kruger - Apr 13, 2012 2:55 PM GMT-0300

Federal Reserve Chairman Ben S. Bernanke said the central bank must increase its focus on
maintaining financial stability in order to prevent a repeat of the crisis that triggered the worst
recession since the 1930s.

“The events of the past few years have forcibly reminded us of the damage that severe
financial crises can cause,” Bernanke said in a speech today in New York. “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.”

The remarks expand on a defense of the central bank’s
aggressive response to the 2007-2009 financial crisis and
recession that Bernanke gave in a university lecture last
month and in previous speeches. Bernanke, who didn’t
address the outlook for the economy or monetary policy in his
remarks, has cautioned that “it’s far too early to declare
victory” on the recovery.

“To avoid or at least mitigate future panics, the vulnerabilities
that underlay the recent crisis must be fully addressed,”

Bernanke said today at a conference titled “Rethinking Finance” organized by the Russell
Sage Foundation and the Century Foundation. “This process is well under way at both the
national and international levels.”

Responding to audience questions after the speech, Bernanke said evidence is “weak” that
low central bank interest rates contributed to the housing bubble.

Recounting Crisis

Bernanke devoted his speech to recounting the crisis and explaining the Fed’s actions to the
public as it has come under scrutiny by critics in Congress and on the campaign trail.

Following the bankruptcy of Lehman Brothers Holdings Inc. in 2008, the central bank flooded
the financial system with liquidity, expanding its balance sheet to $2.3 trillion by December of
that year from $900 billion in September.

Even as the crisis ebbed, the recession deepened, with gross domestic product shrinking at
an 8.9 percent annual rate in the fourth quarter of 2008, the worst quarter in 50 years. The


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13/04/12 15:30Bernanke Says Promoting Financial Stability Is Key Fed Role - Bloomberg

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unemployment rate rose to 10 percent in October 2009, the highest since June 1983.

Bernanke said that “gaps in the statutory framework” contributed to the buildup of risk in
financial markets. Yet “even when the relevant statutory authorities did exist, they were not
always used forcefully or effectively enough by regulators and supervisors, including the
Federal Reserve.”

Under Pressure

The financial system came under pressure in the summer of 2007 as the market for subprime
mortgage bonds began to collapse, and by August the Fed responded by cutting the interest
rate it charges on loans to banks borrowing at its discount window.

The Fed lowered its benchmark interest rate in a series of cuts, to 3 percent in January 2008
from 5.25 percent in August 2007. Yet in March 2008, the crisis intensified with the collapse
of Bear Stearns Cos., the fifth-biggest U.S. securities firm, prompting the Fed to intervene
and help JPMorgan Chase & Co. acquire the bank.

That didn’t end the crisis. In September 2008, Lehman Brothers filed the largest bankruptcy
in U.S. history after the central bank and U.S. Treasury declined to intervene. One day later,
the Fed made an $85 billion loan to American International Group Inc. to avert the collapse of
the New York- based insurance company.

To contact the reporters on this story: Joshua Zumbrun in Buffalo, New York at
jzumbrun@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Then please, less talk and more action. Do what needs to be done!

Accountable1 16 minutes ago

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