Yellen backtracks: 'We can never be confident there won't be another financial crisis'

Key Points
  • Fed Chair Janet Yellen raised eyebrows a few weeks ago when she said another financial crisis was unlikely "in our lifetime.
  • In Senate testimony Thursday, the central bank chief clarified those remarks, saying that the system has been strengthened so that financial institutions can withstand another downturn.
Yellen: We've done a great deal since financial crisis to strengthen financial system

Fed Chair Janet Yellen, in testimony Thursday before Congress, walked back comments she made recently that there would not be another financial crisis "in our lifetime."

Instead, the central bank chief said banking regulations have made another crisis significantly less likely and the financial system has enough capital on hand to withstand a downturn.

"What I should have stated originally when I made that comment, I believe we have done a great deal since the financial crisis to strengthen the system and to make it more resilient," she said in her semiannual remarks to the Senate Banking Committee.

"I think that we can never be confident that there won't be another financial crisis. But we have acted in the aftermath of that crisis to put in place much stronger capital and liquidity requirements for systemic banking organizations and the banking system more generally," she added.

Yellen raised eyebrows during a June 27 appearance in London when she said the Fed's actions in the wake of the financial crisis had brought a stability to the system that is unlikely to be broken soon. Her assertion that another crisis was unlikely drew some derision on Wall Street and on social media.

During her Senate remarks, Yellen was questioned about the statement and quickly moved to clarify her meaning.

She said the Fed's moves have been critical to requiring that banks carry more capital and pass exams aimed at seeing how they would function in the event of another crisis.

"I think our stress testing regime is forcing banks to greatly improve their risk management and capital planning," Yellen said. "It's given us assurance that even if there is this very significant downturn in the economy, that they will be able to function and provide for the credit needs of the economy."

"But let me say," she added, "we can never be confident that there won't be another financial crisis. But it is important we maintain the improvements that have been put in place that mitigate the risk in the potential downturn."