ATLANTA — Regulatory failure, not lax monetary policy, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday.
"Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates," Mr. Bernanke, whose nomination for a second term awaits Senate confirmation, said in remarks to the American Economic Association.
Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued that the interest rates set by the central bank between 2002 and 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve System for most of that period.
Technical models based on historical trends in United States housing prices and monetary policy show that home prices rose much faster than interest rates alone would have predicted, Mr. Bernanke said.
He also argued that trends in other countries demonstrated a "quite weak" connection between housing price appreciation and monetary policy.
"When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment," he said.
The Senate Banking Committee approved Mr. Bernanke's renomination last month. He is expected to be reconfirmed by the full Senate before his current term expires on Jan. 31, despite some vocal opposition from critics such as Senator Bernard Sanders, an independent from Vermont.
Even if confirmed, however, Mr. Bernanke will most likely face further political challenges over financial regulatory reform and the governance of the Fed.
He has been pushing for Congress to grant the Fed greater oversight powers over the financial system, including the authority to help monitor and regulate against "systemic risk."
But anger at the Fed's failure to foresee the financial crisis — and persistent disagreement over whether the Fed would have been able to prevent the crisis even with better forecasts — have fueled arguments for limiting the Fed's power and independence.
Last month, as part of a larger financial reform package, the House passed a provision to audit the Fed.
"Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates," Mr. Bernanke, whose nomination for a second term awaits Senate confirmation, said in remarks to the American Economic Association.
Mr. Bernanke, addressing accusations that the Fed contributed to the financial crisis, argued that the interest rates set by the central bank between 2002 and 2006 were appropriately low. He was a member of the board of governors of the Federal Reserve System for most of that period.
Technical models based on historical trends in United States housing prices and monetary policy show that home prices rose much faster than interest rates alone would have predicted, Mr. Bernanke said.
He also argued that trends in other countries demonstrated a "quite weak" connection between housing price appreciation and monetary policy.
"When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment," he said.
The Senate Banking Committee approved Mr. Bernanke's renomination last month. He is expected to be reconfirmed by the full Senate before his current term expires on Jan. 31, despite some vocal opposition from critics such as Senator Bernard Sanders, an independent from Vermont.
Even if confirmed, however, Mr. Bernanke will most likely face further political challenges over financial regulatory reform and the governance of the Fed.
He has been pushing for Congress to grant the Fed greater oversight powers over the financial system, including the authority to help monitor and regulate against "systemic risk."
But anger at the Fed's failure to foresee the financial crisis — and persistent disagreement over whether the Fed would have been able to prevent the crisis even with better forecasts — have fueled arguments for limiting the Fed's power and independence.
Last month, as part of a larger financial reform package, the House passed a provision to audit the Fed.
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