Federal Reserve building in Washington. (Photo: AP)

The biggest worry isn’t “when” the Fed will raise rates, but “how” the Fed should be helping to identify threats to financial stability, Alice Rivlin, the former vice chair of the Federal Reserve, said Thursday.

Speaking at The Atlantic’s Summit on the Economy in Washington, Rivlin stated that “quite accomodative monetary policy, low rates, will be appropriate for some time,” and that the Fed’s real challenge is preventing another financial collapse.

Asked to comment on the Dodd-Frank financial reform law, Rivlin stated that Dodd-Frank is “a step in the right direction,” adding that she feels “very strongly that financial instability is the biggest threat” for the nation. “We can’t do 2008 again; I don’t think we should relax on that.”

While “new tools” were created under Dodd-Frank to help prevent another economic meltdown, “we haven’t seen whether they [those tools] will be used.”

Rivlin said that it’s “likely that at some point we’ll have another financial crash, if we’re not vigilant.” Part of being vigilant, she added, is “Congress and the president saying ‘we need to be vigilant on financial oversight and we can’t let those who are being regulated turn that around.’”

The nation’s regulatory system “is very fragmented,” Rivlin said, adding that there’s a “need to consolidate prudential regulation.”

She voiced her support for the “very interesting and bold” recommendation put forth recently by former Fed Chairman Paul Volcker, which called for a new Prudential Supervisory Authority to handle supervision currently performed by the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and the market regulators. Volcker’s plan would also consolidate the Securities and Exchange Commission and Commodity Futures Trading Commission.

Rivlin revealed that she is on The Volcker Alliance’s board. Volcker’s plan “consolidates prudential regulation of federally regulated institutions under the Fed’s new vice chair for financial regulation,” a position created under Dodd-Frank but not yet filled. “It’s a sensible thing to do,” she said, “but it’s not going to happen quickly.”

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