Janet Yellen, the president’s pick to be the second-highest ranking official at the Federal Reserve, acknowledged Thursday that regulators were slow to crack down on risky banking practices that stoked the 2008 financial crisis.
Testifying before the Senate Banking Commitee, Yellen, president of the Federal Reserve Bank of San Franciso, whose region was at the heart of the housing boom, described banking oversight at that time as “insufficient” and “weak.”
Beefing it up is a key focus for the central bank, she said. A lesson learned, she said, was how hard it was “for all the regulators involved to take away the punchbowl in a timely way.”
The Fed and other regulators, Yellen said, “failed to connect the dots” in understanding how the bursting of the housing bubble would hurt the financial system and the entire economy.
Sarah Raskin, a Harvard-educated lawyer who is the Maryland commissioner of financial regulation and is a nominee for a position on the Fed board, agreed.
Raskin suggested that the Fed didn’t pay sufficient attention to a booming housing market that eventually went bust, taking the economy down with it. “I think the extent of the housing bubble was not appropriately monitored or taken seriously,” she said.
Going forward, she suggested the Fed needs to pay more attention to curbing such speculative excesses.