Today, Federal Reserve Chairman Ben Bernanke delivered a speech at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyoming in which he reflected on the events surrounding the financial crisis. Mr. Bernanke was generally upbeat and credited the policy actions implemented in recent months with helping to stabilize the global economy. “After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.” He did warn, however, that critical challenges remain.

Mr. Bernanke blamed the “sharp intensification” of the financial crisis in September and October of 2008 on panic. “Although, in a certain sense, a panic may be collectively irrational, it may be entirely rational at the individual level, as each market participant has a strong incentive be among the first to exit.” With this perspective in mind, he said that a more system wide or “macro-prudential” approach, which emphasizes the interdependencies among firms and markets that have the potential to undermine the stability of the financial system, is needed to prevent future financial crises.