Timothy Geithner was yesterday forced to defend the Federal Reserve, after congressmen turned fire on its failure to prevent the collapse of Lehman Brothers in 2008, and said the regulator's tools had been "insufficient". US Treasury Secretary Mr Geithner, who was the president of the Fed during the crisis told the House Committee on Financial Services: "With the limited powers that we had, we worked diligently to avoid an outcome that would destabilise the financial system and damage the broader economy." This followed an attack from Spencer Bachus, the ranking Republican member of the panel, who said the Federal Reserve had either been "incompetent or they concealed facts". He continued: "At best, regulators failed to catch the accounting manipulation that permitted Lehman to give a misleading picture of its financial health."
Mr Geithner said that failure was "inevitable in financial systems, before adding: "The challenge for governments is to devise a system where failures of private firms cannot cause catastrophic damage to the economy." Ben Bernanke, the chairman of the Fed, also appeared before the committee yesterday. When asked if he were in favour of a bill that gave regulators increased authorities to break up institutions that had become too big to fail, he said: "I think it's something that would be on the whole, constructive" and said he would be willing to work with the congressmen.