Ben Bernanke Speech On Changes In Central Banking Due To The Financial Crisis

This speech was presented by Ben Bernanke on October 18th at the Federal Reserve Governors meeting at the Boston Federal Reserve Bank. The speech was intended to to summarize the lessons learned from the financial crisis that has caused changes in the policies and procedures of central banks worldwide. Prior to the financial crisis, central banks were focused on maintaining price stability and employment stability. They had been fairly effective at using monetary policy to achieve those goals. Maintaining the stability of the financial system was also a goal but the financial crisis brought it to the forefront. In a sense, maintaining stability of the financial system complements the goals of price stability and employment stability. These goals are dependent upon a stable financial system to provide credit and other services that impact economy in multiple ways.

Part of his presentation was on the operation of central banks when short term interest rates have been lowered to almost zero, and can't be lowered further. Central banks have used their balance sheets to keep long term interest rates low and they have accepted non-traditional assets as collateral in order to provide liquidity and the flow of credit in the banking system.

Another part of his speech was on the role of central banks to anticipate asset bubbles and other risks to the financial system. Central banks have a micro and macro prudential duty to monitor and prevent the recurrence of financial crises like the ones that we recently experienced and like those that are being dealt with in Europe.