WASHINGTON (AP) - Chairman Ben Bernanke said Friday that the Federal Reserve is drafting rules to close large insolvent banks without bringing down the broader financial system, one of many steps regulators must take to prevent another financial crisis.
Bernanke said the absence of a process to deal with systemically important institutions in 2008 left regulators facing the "terrible choices of a bailout or allowing a potentially destabilizing collapse." His comments were made at a conference sponsored by the International Monetary Fund.
The financial overhaul law passed by Congress in 2010 gave regulators better tools to close down large financial institutions, he said. The Fed and other regulators are working to implement those rules now.
"Our continuing challenge is to make financial crises far less likely and, if they happen, far less costly," Bernanke said.
At the IMF conference, Bernanke was asked about whether enormous growth in student loan debt could trigger a future financial crisis. He said that the debt was a drag on the economy but not a threat to the overall financial system.
Student loans prevented many Americans from buying homes or making other big-ticket purchases, he noted. But the bulk of the debt is backed by the federal government, so financial institutions would not be at risk from widespread defaults, he said.
"I don't see it affecting the ability of the financial system any time soon," Bernanke said. "But it is a serious issue and more thought needs to be given to helping people make better choices."
Bernanke did not make any comments during his appearance about current economic conditions or the Fed's interest rate policies.