Saying lax regulation had caused the housing collapse of 2008-2009, Fed Chairman Ben Bernanke suggested the financial industry needs more oversight going forward.
In this way, the nation’s top banker denied that expansionary monetary policy should be blamed for the financial and economic woes of the last two years. In recent times, the Fed has come under criticism for keeping interest rates low, which some say fueled the excesses in the housing market.
The chairman, however, offered a different view. "Borrowers chose, and were extended, mortgages that they could not be expected to service in the longer term" Bernanke told a meeting of the American Economic Association, quoted by the Financial Times.
"This description suggests that regulatory and supervisory policies, rather than monetary policies, would have been a more effective means of addressing the run-up in house prices," he added.
Bernanke is currently undergoing Senate hearings leading up to the vote on his confirmation for the second term as Fed chairman, and the issue of the monetary policy prior to the financial crisis is high on the agenda of some lawmakers.
Many of the central bank’s critics in Congress will be fighting this year to limit its regulatory and oversight role, something Bernanke and President Obama are likely to oppose.