Former Federal Reserve Chairman Ben Bernanke says reforms made since the financial crisis will help avert a similar crisis from occurring again, but he stops short of saying the system is protected.
“I think we’ve made a lot of progress,” he said Monday night to a large audience of students and faculty at Northwestern University still looking for assurances they won’t have to again endure the panic and snowballing unemployment that occurred in 2008. Millennials, according to numerous surveys, remain concerned about jobs and paying student loans.
While the Evanston campus is known for strong turnouts for prominent figures, the Bernanke audience filled every inch of standing space as well as steps in aisles and seating in the Leverone Auditorium in the Donald P. Jacobs Center.
Bernanke noted the world is still recovering from the 2008 crisis and “the U.S. is probably the strongest economy in the world.” The U.S. economy, he said, “has been creating a lot of jobs and housing is coming back.”
But, he added, “we are connected to the rest of the world. It is hard for the U.S. to recover when the rest of the world is still dragging.”
Bernanke took issue with the election-cycle talk of breaking up large U.S. banks and investment banks. Breaking up banks is an “oversimplified” approach to the risk of large banks failing, he said.
Still, he acknowledged ongoing banking problems. He noted the five biggest institutions recently had their “living wills” rejected by regulators. Under post-crisis reforms, banks are required to write so-called living wills describing for regulators “how they will be taken apart in a safe way” if failing.
If these living wills are unsatisfactory, and if banks are not operating safely, Bernanke said regulators must enforce regulations, including the reforms passed after the 2008 crisis. But he said he opposes “breaking up banks without figuring the benefit they provide.”
He also said reforms influence banks to stay smaller rather than becoming “too big to fail.” When banks are large, he said, “they must hold more capital and go through more stress tests.”
Bernanke said he realizes some of the anger and polarization seen in the election cycle is derived from the 2008 crisis.
He added, however, that critics who claimed the Federal Reserve’s policies would lead to hyperinflation were wrong and there is no threat of serious inflation.
Currently, he said, the U.S. continues to feel the drag of a weak global economy and the legacy of the 2008 financial crisis. Also causing global growth stagnation, he said, are aging populations in many countries, income inequality and China converting from a heavy industrial, export-driven economy to a consumer spending and service economy. He called China’s ongoing changes as “very challenging” for China, and difficult for others to interpret because information from China is “opaque.”
The U.S., however, has some strengths that will help the nation “beat secular stagnation,” including its younger population and being the “technical innovator in the world,” he said.
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