Federal Reserve Chairman Ben Bernanke spoke Monday on "Monetary Policy and the Global Economy". Though the speech only had a brief mention of issues impacting money markets, he said, "The topic of this session is lessons learned from the financial crisis. For me, perhaps the central insight is that the recent crisis, despite its many exotic features, was in fact a classic financial panic--a systemwide run of "hot money" away from assets whose values suddenly became uncertain. In that respect, the crisis was akin to many other financial crises faced by governments and central banks--including that most venerable of central banks, the Bank of England --over the centuries. The response to the crisis likewise followed the classic prescriptions of liquidity provision, liability guarantees, asset evaluation and disposition, and recapitalization where necessary. Although the crisis had classic features, to a significant extent it took place in a novel institutional context, making diagnosis and response more challenging: For example, in the United States, collateralized wholesale funding rather than conventional bank deposits constituted the hot money, and run pressure was experienced not only by banks but by diverse other institutions, such as structured investment vehicles. In addition, the scale and complexity of globalized financial institutions and markets made it difficult to predict how the crisis might spread or to coordinate the response. One of the few positive aspects of this episode was the extraordinary degree of international cooperation achieved among policymakers, including the Bank of England and the Federal Reserve, in responding to the crisis."
