Sheila Bair speaking before the National Press Club in 2011.
Highlights of Bair's career
|1981-1988:||Research director, deputy counsel and counsel for U.S. Sen. Robert Dole, R-Kan.|
|1991-1995:||Commissioner, Commodity Futures Trading Commission|
|1995-2000:||Senior vice president for government relations, New York Stock Exchange|
|2001-2002:||Assistant secretary for financial institutions, U.S. Treasury|
|2002-2006:||Dean's professor of financial regulatory policy, University of Massachusetts Amherst Isenberg School of Management|
|2006-2011:||Chairwoman, Federal Deposit Insurance Corp.|
|2011:||Senior adviser, The Pew Charitable Trusts|
|2012:||Chair, Systemic Risk Council|
She sounded alarm bells before the 2007-2008 financial crisis. Now she worries that a new crisis might be in the making. Sheila Bair, former chairwoman of the Federal Deposit Insurance Corp., tells Bankrate that the Federal Reserve is creating potentially dangerous asset bubbles.
After issuing warnings about the risks of Wall Street investments in subprime loans, Bair was thrust into the spotlight during the financial crisis. Under her leadership, the FDIC increased deposit insurance limits to protect borrowers from collapsing banks, and created temporary liquidity guarantees aimed at restoring normal functioning of credit markets.
Now, as chair of the Systemic Risk Council, she focuses regulators on the dangers posed by financial institutions that are too big to fail. In this Q&A, Bair says economic policymakers are treading water with cheap money from the Fed, calls "self-regulating market policies" a mistake, questions whether big banks would be alive without government support and says the Consumer Finance Protection Bureau has left consumers better off.
This July, it will have been two years since you left the FDIC. You worked through the financial crisis. What are your thoughts about the stability of the global financial system right now?
I'm worried. I really am. The good news is that we do have more capital in the banks. There's still too much leverage in the system, I think, but it's not nearly as bad as it was prior to the crisis. But in terms of culture, in terms of risk-taking, I'm not sure we've seen a fundamental change. I think the market has imposed some discipline. Investors have imposed some discipline, but I'm not sure we've had deep cultural changes in the management of these. It's really more on the trading side, I think, that we've seen a lot of the problems.
And then the Fed's monetary policy: Undertaken with the best of intentions, but I do think it's creating distortions. It absolutely made sense in 2009. Since then, I'm not sure if it does. And the longer it goes on, the bigger the risks are. Some of it is obvious, like with the junk bond yields.
And if I really thought we were getting real economic growth from it, I'd say it's worth the risk. But I just don't see that. I see a lot of cash sloshing around the system, creating more asset bubbles. But the economy is still flat on its back.
Where do you see the asset bubbles?