The US Federal Reserve’s (Fed) policy of maintaining low interest rates did not lead to the onset of the financial crisis, Alan Greenspan has claimed. Mr Greenspan, former governor of the Fed, made the comments as part of the Financial Crisis Inquiry hearing in congress.
In a prepared statement to the investigating panel, he said: “It was the global proliferation of securitised US subprime mortgages that was the immediate trigger of the current crisis.”
Long-term rates led to the securitization of subprime mortgages, an area which was outside the Fed’s control, the former head of the organisation explained.
He added that this was “not [due to] the overnight rates of central banks, as has become the seeming conventional wisdom”.
In his testimony, Mr Greenspan also warned that more steps need to be taken to prevent banks from becoming “too big to fail”.
“The existence of systemically threatening institutions is among the major regulatory problems for which there are no good solutions.”
The 84 year-old was head of the US central bank between 1987 and 2006.
In a prepared statement to the investigating panel, he said: “It was the global proliferation of securitised US subprime mortgages that was the immediate trigger of the current crisis.”
Long-term rates led to the securitization of subprime mortgages, an area which was outside the Fed’s control, the former head of the organisation explained.
He added that this was “not [due to] the overnight rates of central banks, as has become the seeming conventional wisdom”.
In his testimony, Mr Greenspan also warned that more steps need to be taken to prevent banks from becoming “too big to fail”.
“The existence of systemically threatening institutions is among the major regulatory problems for which there are no good solutions.”
The 84 year-old was head of the US central bank between 1987 and 2006.
