Don't forget damage caused by financial crisis: Yellen

LONDON • United States Federal Reserve chairman Janet Yellen said it is important not to forget the devastation caused by the global financial crisis, and warned against undoing regulations put in place to prevent a repeat.

"We're now about a decade after the crisis first hit and memories tend to fade," Dr Yellen said on Tuesday at an event in London.

"I hope that won't be the case, and those of us who lived through it remind the public that it's very important to have a safer, sounder financial system and it's essential to sustainable growth."

Because of regulations and processes put in place in the years since the start of the crisis, banks have much stronger capital and are able to withstand "enormous shocks" in the stress tests they are subjected to by the Fed, she said.

Her comments come at a time when President Donald Trump's administration is pushing for massive deregulation in the economy, including for banks whose lending they say has been curtailed by the post-crisis regulatory burden.

From the 1980s to the start of the crisis, central bankers "were patting themselves on the back" because of stable conditions, she said. But problems that were building and ignored or overlooked "did come home to roost and almost took down the financial system".

She also said that though it is "going too far" to say there will never be another crisis, "I do think we're much safer, and I hope it will not be in our lifetimes and I don't believe it will be".

Dr Yellen and two other officials also spoke on the state of US financial markets, all acknowledging valuations in equity and other asset markets rose noticeably in recent weeks. Asset valuations by some measures "look high, but there's no certainty about that", she said.

Earlier, San Francisco Federal Reserve Bank president John Williams said the stock market "seems to be running very much on fumes" and he was "somewhat concerned about the complacency in the market".

Fed vice-chairman Stanley Fischer suggested a "notable uptick" in risk appetite had propelled valuation ratios to very elevated levels.

The comments came amid a torrent of events that hit markets on Tuesday, from an International Monetary Fund cut to its US growth forecast, Google suffering the biggest-ever European Union anti-trust fine, a fresh blow to the Republican agenda in Washington and a global cyber attack.


A version of this article appeared in the print edition of The Straits Times on June 29, 2017, with the headline 'Don't forget damage caused by financial crisis: Yellen'. Print Edition | Subscribe