WASHINGTON (MNI) – The following is the second section of the
second set of remarks of Federal Reserve Chairman Ben Bernanke, prepared
for a panel discussion Friday following his speech, at the European
Central Bank, titled “Emerging from the Crisis: Where Do We Stand?”:

I draw several lessons from our collective experience in dealing
with the crisis. (My list is by no means exhaustive.) The first lesson
is that, in a world in which the consequences of financial crises can be
devastating, fostering financial stability is a critical part of overall
macroeconomic management. Accordingly, central banks and other financial
regulators must be vigilant in monitoring financial markets and
institutions for threats to systemic stability and diligent in taking
steps to address such threats. Supervision of individual financial
institutions, macroprudential monitoring, and monetary policy are
mutually reinforcing undertakings, with active involvement in one sphere
providing crucial information and expertise for the others. Indeed, at
the Federal Reserve, we have restructured our financial supervisory
functions so that staff members with expertise in a range of
areas — including economics, financial markets, and supervision — work
closely together in evaluating potential risks.

Second, the past two years have demonstrated the value of policy
flexibility and openness to new approaches. During the crisis, central
banks were creative and innovative, developing programs that played a
significant role in easing financial stress and supporting economic
activity. As the global financial system and national economies become
increasingly complex and interdependent, novel policy challenges will
continue to require innovative policy responses.

Third, as was the focus of my remarks two years ago, in addressing
financial crises, international cooperation can be very helpful; indeed,
given the global integration of financial markets, such cooperation is
essential. Central bankers worked closely together throughout the crisis
and continue to do so. Our frequent contact, whether in bilateral
discussions or in international meetings, permits us to share our
thinking, compare analyses, and stay informed of developments around the
world. It also enables us to move quickly when shared problems call for
swift joint responses, such as the coordinated rate cuts and the
creation of liquidity swap lines during the crisis. These actions and
others we’ve taken over the past few years underscore our resolve to
work together to address our common economic challenges.

References

Chehal, Puneet, and Bharat Trehan (2009). “Talking about Tomorrow’s
Monetary Policy Today,” FRBSF Economic Letter 2009-35. San Francisco:
Federal Reserve Bank of San Francisco, November 9,
www.frbsf.org/publications/economics/letter/2009/el2009-35.html.

D’Amico, Stefania, and Thomas B. King (2010). “Flow and Stock
Effects of Large-Scale Treasury Purchases,” Finance and Economics
Discussion Series 2010-52. Washington: Board of Governors of the Federal
Reserve System, September, available at
www.federalreserve.gov/pubs/feds/2010/201052/201052abs.html.

Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack
(2010). “Large-Scale Asset Purchases by the Federal Reserve: Did They
Work?” Federal Reserve Bank of New York Staff Reports 441. New York:
Federal Reserve Bank of New York, March, available at
www.ny.frb.org/research/staff_reports/sr441.html.

Hamilton, James D., and Jing (Cynthia) Wu (2010). “The
Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound
Environment,” working paper. San Diego: University of California, San
Diego, August (revised November), http://dss.ucsd.edu/~jhamilto/zlb.pdf.

He, Zhongfang (2010). “Evaluating the Effect of the Bank of
Canada’s Conditional Commitment Policy,” Bank of Canada Discussion Paper
2010-11. Ottawa: Bank of Canada, August,
www.bankofcanada.ca/en/res/dp/2010/dp10-11.pdf.

Joyce, Michael, Ana Lasaosa, Ibrahim Stevens, and Matthew Tong
(2010). “The Financial Market Impact of Quantitative Easing,” Working
Paper 393. London: Bank of England, July (revised August),
www.bankofengland.co.uk/publications/workingpapers/wp393.pdf.

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** Market News International Washington Bureau: 202-371-2121 **

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