NY Fed President: Crisis Can Teach Finance System

GEOFF MULVIHILL

PRINCETON, N.J. (AP) — The president and CEO of the Federal Reserve Bank of New York said Friday that the financial world can learn from the economic crunch of the past two years and become stronger.

William Dudley, who was named president of the key bank in January when predecessor Timothy Geithner became treasury secretary, spoke at a symposium at Princeton University's Center for Economic Policy Studies on Friday.

"Our goal must be to make the financial system more resilient to shocks," he said. "If we can do that successfully, we should be able to reduce the risk of financial crises."

Dudley said the financial crisis deepened quickly partly because of its reliance on funding from the so-called shadow banking system of hedge funds and other lightly regulated financial entities, which turned out to be more fragile than expected.

Those funds stopped making loans for two main reasons, he said.

One is that the firms that needed money may have been insolvent.