“No reason to panic” says former Richmond Fed bank president

The U.S. financial system is facing its biggest crisis in modern times as damage from the housing and bad mortgage loans continues to unwind.

The latest casualties are the Merrill Lynch brokerage, which will be bought by Charlotte, N.C.-based Bank of America, and Lehman Brothers, the nation’s fourth largest investment bank, which filed for bankruptcy protection today.

“It certainly is a serious situation,“ said J. Alfred Broaddus Jr., former president of the Federal Reserve Bank of Richmond.

The severity is equal to the savings and loans crisis of the late 1980s and early 1990s, Broaddus said. “But keep in mind that we got through the S&L crisis.“

The government’s responsibility is not to protect any particular institution, Broaddus said. “It is to guarantee the stability of the American financial market.“

People should be cautious and alert, aware of the investment risks in the current situation, he said.

“But there is no reason for the average American household to panic,“ Broaddus said. “We can move past this without broad or permanent damage to the U.S. economy.“