WASHINGTON — Federal Reserve Chairman Ben Bernanke on Friday defended financial innovation but said the current crisis proves that policymakers must make sure that new, complex financial products are transparent enough to enable customers to make reasonable decisions.
“Regulation should not prevent innovation, rather it should ensure that innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes,” Bernanke said in a speech at a community affairs forum in Washington. “We should be wary of complexity whose principal effect is to make the product or service more difficult to understand by its intended audience.” He specifically warned against placing new limits on credit providers that would prevent the development of new services and products.
Bernanke’s luncheon speech focused on consumer protections and didn’t touch on the economic outlook.
The Fed chief said the recent crisis shows that financial innovation “can misfire,” noting that products such as subprime mortgage loans, credit default swaps and structured investment vehicles “have become emblematic of our present financial crisis.”
