US Federal Reserve chairman Ben Bernanke said today he could not have legally saved Lehman Brothers from bankruptcy and the firm's catastrophic failure in 2008 was a source of sadness.
Mr Bernanke, testifying before a congressional commission examining the causes of the worst financial crisis in 80 years, said a freshly minted financial reform law would help reduce the risk of future problems, provided regulators follow through on its implementation.
"It was with great reluctance and sadness I conceded that there was no other option" to save Lehman, Mr Bernanke said.
"There was never any discussion that says 'here's how we can save Lehman, should we do it or not?'. The discussion was 'there is no way' and that was my belief and that's how I proceeded, because, as I said, if I could have done anything to save it, I would have saved it."
The crisis commission wraps up a two-day session today focusing on "too big to fail" firms whose disorderly collapse could destabilise the global economy.
The 10-member, congressionally-appointed commission is due to issue its report on the financial crisis by December 15th.
Yesterday, commission chairman Phil Angelides questioned whether politics had played a role in the September 2008 decision not to rescue Lehman Brothers. Its bankruptcy triggered widespread panic, hastening the worst global recession since the second World War.
The Fed has insisted it had no authority to rescue Lehman because the firm lacked sufficient capital to borrow enough to stave off collapse.
"Any attempt to lend to Lehman within the law would be futile and would only result in loss of cash," Mr Bernanke said.
The financial crisis, which began with failing US home mortgages, led to the bankruptcy, bailout or government-brokered buyout of large financial firms including Bear Stearns, Lehman Brothers, Wachovia and Washington Mutual.
The costly bailouts have been hugely unpopular with voters, and many politicians are still paying the price with angry voters as November congressional elections near.
Mr Bernanke said stricter capital and liquidity rules, a regime to wind down a failing firm in an orderly fashion, and requirements that most derivatives are to be settled in clearinghouses, will strengthen the financial system and help address the too-big-to-fail problem.
Reuters