When everyone is deemed too systemically important to be allowed to fail: Former Fed Chair Ben Bernanke, the primary architect of the current Fed-debt debacle, is arguing the Fed doesn’t have enough power to lend to shadow banks and other non-bank institutions.
With the financial crisis now 10 years in the rearview mirror, former Federal Reserve Chairman Ben Bernanke says the U.S. central bank may be ill-equipped to handle the next financial crisis.
Bernanke said at a conference at New York University on Friday that the Fed needs to have expanded powers to lend to institutions that are not commercial banks, which is the only industry that the central bank can offer emergency funds to as a “lender of last resort.”
That tool, Bernanke said, needs to be extended to cover shadow banks like broker-dealers and other non-bank institutions that could prove systemic in the next financial downturn.
“I fear they are not fully adequate,” Bernanke said of the Fed’s regulatory powers.
Former Fed Chair Janet Yellen has echoed similar concerns, worrying that leveraged lending existing outside of the regulated banking space could be an issue.
‘Politics was a much bigger part of it’
Speaking alongside former European Central Bank President Jean-Claude Trichet and former Bank of England Governor Mervyn King, Bernanke said other central banks have more flexibility in terms of what companies they can lend to, whereas the U.S. needed to get Congressional action to lend to nonbank companies through the Troubled Asset Relief Program. King briefly joked that the Bank of England could lend to the Aston Villa Football Club if it wanted to.