Former U.S. Federal Reserve Vice Chairman Donald Kohn gave testimony to parliament’s Treasury Committee on Tuesday, ahead of taking up his post on the Bank of England’s new Financial Policy Committee for bank regulation.
Following are highlights:
BLAME FOR FINANCIAL CRISIS.
“I deeply regret the pain that was caused to millions of people in the U.S. and around the world by the financial crisis. I think it is too narrow to say, to put it all on the Federal Reserve. The fact that we had similar circumstances in very different systems in Europe and the UK and other parts of the world, suggests to me there is a lot of blame to go around.
“Most of the blame should be on the private sector: the people that bought and sold those securities, on the credit rating agencies that rated them. But I also agree that the cops weren’t on the beat.
“The regulators were not as alert to the risks as they could have been and, to the extent they saw the risks, were not as forceful in bringing them to the attention of management, or taking actions, as they could have been. All this with 20/20 hindsight obviously.”
WOULD VOLCKER RULE DRIVE BUSINESS OFFSHORE?
“There is an issue, not necessarily with driving businesses offshore, but driving them into less regulated entities, where you don’t know quite what’s going to happen.
“Into shadow banking, where you don’t know if that is likely to be onshore or offshore. That’s a possibility.”