Federal Reserve: Don't Get Excited, We're Not Done Bailing Out Banks Yet

Federal Reserve chairman Ben Bernanke said that the $800 billion stimulus plan being discussed by the new administration might “provide a significant boost to economic activity,” but that it wouldn’t work without more bank bailouts.

From CNNMoney:

…Bernanke cautioned that the plan is “unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system.”

Bernanke suggested that more banks and financial firms are likely to need additional capital injections from the government, and that further guarantees of their debt could be necessary, in return for the federal government receiving further equity in the firms.

The Fed chairman also said that “removing troubled assets from institutions’ balance sheets, as was initially proposed for the U.S. financial rescue plan,” might also be needed to supplement any further investments in banks.

He also added that he didn’t think that the financial meltdown necessarily showed that there was insufficient regulation.

“What we’ve learned in this case is not necessarily that we need a lot more regulation,” he said in response to a question following his speech. “We need to think what went wrong…We need to think very hard about how to fix it.”

He concluded that while better regulation is necessary and will have to be addressed soon, it is not the most pressing need at this moment.

“It’s good advice in general if there’s a fire burning, you try to put it out first, and then think about the fire code,” he said.

Bernanke: More bank bailouts needed [CNNMoney]
(Photo:frankieleon)