Federal Reserve will implement new tools to avert financial crises, Bernanke says
WASHINGTON — Chairman Ben Bernanke said Friday that the Federal Reserve is drafting rules to close large insolvent banks without bringing down the broader financial system, one of many steps regulators must take to prevent another financial crisis.
Bernanke said the absence of a process to deal with systemically important institutions in 2008 left regulators to deal with the “terrible choices of a bailout or allowing a potentially destabilizing collapse.” He spoke at a conference sponsored by the International Monetary Fund.
The financial overhaul law passed by Congress in 2010 gave regulators better tools to close down large financial institutions, he said. The Fed and other regulators are working to implement those rules now.
“Our continuing challenge is to make financial crises far less likely and, if they happen, far less costly,” he said.
At the IMF conference, Bernanke was asked about whether enormous growth in student loan debt could trigger a financial crisis. He said the debt is a drag on the economy but not a threat to the overall financial system.
Student loans prevented many Americans from buying homes or making other big-ticket purchases, he noted. But the bulk of the debt is backed by the federal government, so financial institutions would not be at risk from widespread defaults, he said.