Federal Reserve vice chairman Donald Kohn, responding to questions following a speech delivered at Northwestern University Monday on challenges facing the Fed, suggested regulators didn’t fully see the financial vulnerabilities that led to the recent asset-price bubble, and perhaps should have done more to prevent it.

However, as Congress and regulators look at the crisis and its implications for financial reform, Kohn said: “I don’t think [the Fed’s] policies” in 2003, 2004, and 2005 led to lax regulation. It was more 'a build-up of complacency’ and the fact that we had not fully adapted” to changes in the financial system, rather than a lack of oversight.

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