Ex-policymakers worried about US' ability to combat next 2008 like crisis

While agreeing that the banking system is stronger than 2008, Ben Bernanke, Timothy Geithner, and Henry Paulson saw some weak spots in the US's crisis-fighting arsenal that didn't exist a decade ago.

Federal Reserve policy makers appear confident that they have the weapons they’ll need to fight the next financial crisis. Some of their predecessors on the front lines are not so sure.

Ben Bernanke, Timothy Geithner and Henry Paulson all voiced varying degrees of concern about America’s ability to combat another financial meltdown 10 years after they played prominent roles battling the last one.

While agreeing that the banking system is a lot stronger than it was back then, they saw some weak spots in the country’s crisis-fighting arsenal that didn’t exist a decade ago. The trio also decried the nation’s ballooning budget deficits in a joint briefing with reporters.

“We’ve got better defenses against the more mild, typical sets of shocks that happen to economies and financial systems but in the extreme crisis probably less degree of freedom, more constraints than would be ideal,” former Treasury Secretary and New York Federal Reserve Bank President Geithner said.

The U.S. instituted a raft of reforms after the last crisis drove the economy into its worst recession since the Great Depression. Some were designed to fortify the country’s biggest banks and make it easier to shut them down so they wouldn’t have to be rescued by the government if they ran into trouble.

Others though limited the discretionary power of the Fed, the Treasury and the Federal Deposit Insurance Corp. to provide financial institutions with support as lawmakers responded to a public backlash against bailouts and Wall Street.

Fed Vice Chairman for Supervision Randal Quarles acknowledged in April that the tools available to regulators in an emergency had changed. But he told a conference in Washington, “I wouldn’t be too negative about our ability to respond in the future.”

His boss, Fed Chairman Jerome Powell, has voiced confidence in the government’s ability to shut down a failing financial institution in a crisis without having to sink money in it, telling lawmakers in November that no bank is too big to fail.

Geithner, who is president of private equity firm Warburg Pincus LLC, argued that the emergency powers that proved so essential a decade ago are “somewhat weaker” today.