Federal Reserve Chairwoman Janet Yellen said Wednesday that her agency is working toward ensuring that no financial firms are “too big to fail” and making progress, but stopped short of saying that the problem has been resolved.
“In the aftermath of the crisis, the Congress tasked the banking regulators with challenging and changing the perception that any financial institution is too big to fail,” Yellen said Wednesday morning at a conference in Washington.
“Steps are under way to achieve this objective,” Yellen explained, citing several new rules instituted by the Fed and other agencies, including forcing the banks to prepare “living wills” spelling out how they would shut down their businesses without causing a panic.
Lawmakers on both the right and left have questioned whether new regulations put in place by the 2010 Dodd-Frank financial reform law in response to the crisis have succeeded in ending the problem of too big to fail.
Yellen on Wednesday touted regulators’ “significant progress in addressing incentive problems within the financial sector,” without saying that they have ended the perception that some firms would get bailouts in case of a crisis.
Investors’ belief that banks would get assistance from the government if they failed, Yellen argued, was in part to blame for the increase in risk-taking that led to the financial crisis in 2008. She also faulted regulators, who she said “did not keep up with changes in the financial sector and were insufficiently attuned to systemic risks” prior to the panic.
