Policymakers face continuing challenge of averting crisis: Bernanke

Washington – US Federal Reserve Chairman Ben Bernanke said Friday that the US regulators face a continuing challenge of making financial crises “far less likely” and “far less costly”.

“The task is complicated by the reality that every financial panic has its own unique features that depend on a particular historical context and the details of the institutional setting,” Xinhua quoted Bernanke as saying at an annual conference sponsored by the International Monetary Fund (IMF).

He talked about the similarities between the 2008 financial crisis and the 1907 financial panic, and said both crises had a identifiable trigger that spread uncertainty and the provision of liquidity in the early stages was crucial, but only the first step.

Bernanke also said that without an adequate resolution process for dealing with failing large financial institutions, policymakers would face the “terrible choices” of a bailout or allowing a potential destabilising collapse.

He noted that the financial reform package passed in 2010 gave the regulators better tools to combat crisis and close down systemically important financial institutions.

He stressed that the challenge for policymakers is “to identify and isolate the common factors of crises, thereby allowing us to prevent crises when possible and to respond effectively when not”.