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Fed's Lacker says rescue may prompt crisis

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WASHINGTON, June 6 (UPI) -- Richmond Federal Reserve Bank President Jeffrey Lacker said the rescue of investment bank Bear Stearns in March could lead to "future crisis."

"The expectation of safety net support can weaken the incentive of counterparties to build provisions in their financial contracts that reduce their susceptibility" to bank runs, Lacker said at the European Economics and Financial Center in London on Thursday.

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"In times of financial crisis, the understandable central bank imperative is to alleviate the stress. But the expectations such actions engender could very well make future crises more likely," Lacker said.

"The views I express are my own, and not necessarily shared by my colleagues in the Federal Reserve System," he added.

But, Lacker's statements follow in the wake of other regional bank presidents who have expressed doubts about the Fed's bailout of Bear Stearns, The Washington Post reported Friday.

Philadelphia Fed President Charles Plosser recently called for explicit guidelines that define when the Fed will step in to protect financial firms, the Post reported.

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