. . . the right regu
he past two and a half years have
been challenging ones for the Federal
Reserve. The financial market turmoil
that began in mid-2007 plunged the
U.S. economy into a stubborn down-
turn that raised fears of another Great Depression.
Determined to avoid the monetary policy mistakes of
the 1930s, the Fed met the crisis head-on, taking a
series of bold policy actions that lowered interest rates
and funneled credit directly to the private sector.
By the end of 2009, we could breathe easier.
Confidence in the banking industry is on the mend,
financial markets are returning to normalcy and the
economy is showing signs of recovery, however tepid.
It is time to look back—to see what we have learned—
and to look forward to reshaping the policy environ-
ment, with an eye toward lessening the odds of future
I come away from the past two years with four
fundamental beliefs—all honed not only by my five
years as a monetary policymaker but also by my
decades of experience as a market operator. First, I
am more convinced than ever that financial institu-
tions and financial markets require a healthy dose of
regulation to function efficiently. Second, I am more
convinced than ever of the importance of regulatory
and supervisory authority to the proper conduct of
monetary policy. Third, I am more convinced than ever
4 FEDERAL RESERVE BANK OF DALLAS • 2009 Annual Report
Reflections on the Financial Crisis:
Where Do We Go From Here?
An Essay by Richard W. Fisher
that too-big-to-fail banks are dangerous and should
be contained, if not broken up. Fourth, I am more
convinced than ever that central banks operate most
effectively when insulated from political passions.
Taken together, these beliefs underscore the
necessity of a forward-looking, carefully crafted re-
structuring of the financial system. An approach that
scuttles such time-tested fundamentals as central
bank independence will do more harm than good. At
the same time, simply de