The big banks should be shut down if their actions threaten the financial system, the US Federal Reserve Chairman Ben Bernanke told a panel investigating the financial crisis today.
“If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved,” Bernanke told the Financial Crisis Inquiry Commission in Washington.
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 is presenting 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.
Bailing out these institutions is not a healthy solution, Bernanke said. The new financial overhaul law which empowers regulators to shut down firms whose collapse pose a broader threat to the system, would be a great improvement.
“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.