Watching for the “risks of excessive optimism, leverage, and maturity transformation” can limit future financial crises, Federal Reserve Chair Janet Yellen said Friday.

“We can never be sure that new crises will not occur, but if we keep this lesson [that risks can re-emerge] fresh in our memories — along with the painful cost that was exacted by the recent crisis — and act accordingly, we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly, sparing households and businesses some of the pain they endured during the crisis that struck a decade ago,” Yellen said at the symposium in Jackson Hole, Wyo., according to prepared text released by the Fed.

About the economy, Yellen said she sees “substantial progress” toward the Fed’s dual mandate of maximum employment and price stability, as well as establishing “a regulatory and supervisory structure that is well designed to lower the risks to financial stability, and in actually achieving a stronger financial system.”

The added resilience will allow the financial system to “absorb, rather than amplify, adverse shocks,” she said. Resilience allows banks to loan money, “thereby supporting economic growth through good times and bad.”

But, she noted, the work is not finished and the Fed will monitor reforms and make needed changes “to most efficiently maintain a resilient financial system. Moreover, I expect that the evolution of the financial system in response to global economic forces, technology, and, yes, regulation will result sooner or later in the all-too familiar risks of excessive optimism, leverage, and maturity transformation reemerging in new ways that require policy responses.”

Federal Reserve Board Chair janet Yellen.
Federal Reserve Board Chair janet Yellen. Bloomberg News

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Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.