Financial Regulation

How the Fed Blew It

Federal Reserve Chairman Ben Bernanke is on track to be appointed to a second term by the U.S. Senate, but does he deserve it? The Washington Post takes a damning look at how the Fed’s approach to regulation under Bernanke left banks exposed to the financial crisis. “[R]ather than looking for warning signs, the Fed had joined—and at times defined—the mainstream consensus among policymakers that financial innovations had made banking safer,” The Post writes. In May 2007, Bernanke said "Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market. The troubled lenders, for the most part, have not been institutions with federally insured deposits.” His statement was flat-out wrong: Five of the 10 largest subprime lenders during the previous year were banks regulated by the Federal Reserve.