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.
State News
Bernanke: Shut down banks if they threaten system
- State News
-
-
Obama honors fallen troops at Arlington Cemetery
President Barack Obama paid tribute Monday to the men and women who have died defending America, saying the country must strive “to be a nation worthy of your sacrifice.”
-
Bryants now living in Miss. Governor’s Mansion
Gov. Phil Bryant and his wife, Deborah, have started living in the renovated Governor’s Mansion, more than four months after he took office. “We’ve got a bed, a couch, a chair, a television,” the governor said. “We’re sort of camping out.”
-
MHP on patrol for holiday
Even though there has been a remarkable reduction in the number of fatalities in Mississippi over the past seven years, last year’s Memorial Day Weekend was particularly deadly.
-
Forecasters: 9 to 15 storms this hurricane season
U.S. forecasters predicted Thursday that this year’s Atlantic hurricane season would produce a normal number of about nine to 15 tropical storms.
As many as four to eight of those storms could strengthen into hurricanes, according to the National Oceanic and Atmospheric Administration’s initial outlook for the six-month storm season that officially begins June 1. One to three of those could become major hurricanes with top winds of 111 mph or higher. -
Miss. court sets execution dates for 2 of 3 men
Mississippi will not execute three men on three consecutive days in June, after the state Supreme Court set execution dates a week apart for two men and declined to set a date for a third.
-
New, old law makers tout legislative successes
Four state law makers held a legislative review for members of the Greater Picayune Area Chamber of Commerce at the newly opened Southern Char restaurant Tuesday night to share with business owners information about new bills and laws that have been passed.
-
Prosecutors: Delay sentencing in hate crime case
Federal prosecutors want to delay the sentencing of three white men who pleaded guilty to hate crime charges stemming from a months-long pattern of harassing blacks that culminated in the fatal rundown of James Craig Anderson.
-
Bryant signs laws affecting students and veterans
Mississippi Gov. Phil Bryant signed a bill Wednesday that requires kindergarteners or first-graders to be tested for dyslexia, a reading disorder that can sometimes go undiagnosed for years and leave children struggling to learn.
-
Losing bidder sues over revised bid at state port
A contract dispute has put on hold elevation work at the state port in Gulfport.
The port’s West Pier is being expanded, elevated and updated to house a modern containerized cargo operation. When completed, the pier will include 180 acres elevated for storm-surge protection by 15 feet, to 25 feet above sea level. -
Mom of man in sisters abduction gets new charge
Prosecutors have increased the severity of charges against the mother of a man who abducted two young Tennessee girls after he killed their mother and oldest sister.
- More State News Headlines
-
Obama honors fallen troops at Arlington Cemetery
Patz Suspect's Sister: I Went to Police in 1980s
Diplomatic Expulsions Follow Fresh Syria Report
15 Dead in Northern Italy's 5.8-magnitude Quake
Angry Birds Spreading Their Wings
Witness Describes Fla. Face-chewing Attack
Man Falls Off Crane, Dies After Police Standoff
Russia Condemns Ally Syria Over Massacre of 108
Dairy Farm Uses Chiropractor to Help Cows
Unexpected Smog in Pristine National Parks
Air Canada Plane Makes Emergency Landing
New Ticks Spread Across Southeast, Diseases Rise
Bring Your Own Tech Programs Charge Up Students
Pope's Butler Vows to Help Vatican Investigation
Mother of Allegedly Abused Girl Denies Claims
Raw Video: 19 Dead in Qatar Shopping Mall Fire
Service Dogs Help Wash. Soldiers Battling PTSD
Raw Video: Heckler Bursts in on Blair Testimony
Japan Farmers Plant, Seek Radiation-free Rice
