Fed’s Janet Yellen warns against short memories of global crisis

Janet Yellen in London, June 27, 2017.
Janet Yellen in London, June 27, 2017. PHOTO: REUTERS

WASHINGTON (AFP) – Federal Reserve Chair Janet Yellen on Tuesday (June 27) 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,” Yellen said in a conversation on the economy 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.

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

She said that from the 1980s to the outbreak of the crisis, central bankers “were patting themselves on the back” because of the stable economic and financial conditions.

But problems that were building and ignored or overlooked “did come home to roost and almost took down the financial system,” Yellen said.

Though it is “going too far” to say there will never be another crisis, with the sturdier oversight of the financial system, “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.”

Yellen also acknowledged the impact on workers of globalisation and the changing economy, including China’s growing trade, which studies show has negatively impacted US workers and wages, and even having a “devastating impact” in some communities.

It is important to have programmes in place “to help the losers” from globalization, and help them get the skills to succeed in new jobs, she said.