The best response to the housing bubble would have been regulatory, not monetary, the Fed chairman said. Not that financial regulation and supervision are ineffective, but their execution must be better and smarter, he added.
The best response to the housing bubble would have been regulatory, not monetary, Fed chairman Ben Bernanke said in a speech held before the American Economic Association in Atlanta, underlining that is not that financial regulation and supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter.
“Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates”, he said.
“Regulators, supervisors, and the private sector could have more effectively addressed building risk concentrations and inadequate risk-management practices without necessarily having had to make a judgment about the sustainability of house price increases”, he said.
Full speech
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