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Ben Bernanke: Some Reflections on the Crisis and the Policy Response

April 13, 2012

financial crisis researchFederal Reserve Chairman Ben Bernanke delivered the keynote speech at the Russell Sage and Century Foundation conference on the financial crisis. Here is an excerpt from his address:

To a significant extent, the crisis is best understood as a classic financial panic--differing in details but fundamentally similar to the panics described by Bagehot and many others. The most familiar type of panic that has occurred historically, involving runs on banks by retail depositors, had been made largely obsolete by deposit insurance, central bank backstop liquidity facilities, and the associated government supervision of banks. But a panic is possible in any situation in which longer-term, illiquid assets are financed by short-term, liquid liabilities and in which providers of short-term funding either lose confidence in the borrower or become worried that other short-term lenders may lose confidence. The combination of dependence on wholesale, short-term financing; excessive leverage; generally poor risk management; and the gaps and weaknesses in regulatory oversight created an environment in which a powerful, self-reinforcing panic could begin.

Read Bernanke's full address: Some Reflections on the Crisis and the Policy Response.