Financial regulators need to be on guard against the threat of future financial crises, particularly as banks boost pressure to roll back rules designed to shore up the financial system, a top Federal Reserve official said on Monday.
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"Regulations have been strengthened and the bankers' backlash is both evident and making headway," Fed Vice Chairman Stanley Fischer said at the International Monetary Conference in Toronto. "But often when bankers complain about regulations, they give the impression that financial crises are now a thing of the past, and furthermore in many cases, that they played no role in the previous crisis."
Neither is the case, said Fischer, who in his prepared remarks outlined the lessons he has learned from decades as a crisis-fighter in various global policymaking roles. He did not address the current stance of monetary policy or the state of the economy.
Bond-buying, he said, can effectively stimulate the economy when central banks have already knocked interest rates down to zero, Fischer said. Central banks have also learned they can reduce interest rates even below zero, previously thought to be an impossibility.
But with extraordinary stimulus also comes the risk of potential financial instability, many economists have observed, and indeed even some Fed policymakers have cited financial stability risks as a main reason to begin raising rates sooner than later.
Fischer did not take that view, although he did say that monetary policy should not be ruled out to fight bubbles because it is not clear that regulators have all the tools they need to otherwise prevent crises.
Most strongly Fischer warned against thinking the problems are in hand.
"We should not make the mistake of believing that we have put an end to financial crises," he said. "One reason we should worry about future crises is that successful reforms can breed complacency about risks." (Reporting by Andrea Hopkins, Writing by Ann Saphir; Editing by Chizu Nomiyama)