The financial crisis is less severe than it was following the height of the credit crunch in 2008 on the heels of the Lehman Brothers collapse, but it is far from over, Atlanta Federal Reserve President Dennis Lockhart said on Tuesday.

I believe that conditions are now calmer but it is too soon to breathe easy, he said in remarks to a conference in Jekyll Island, Georgia organized by the Atlanta Fed.

Lockhart also commented on the role of financial innovation moving forward. While innovation has its downside, Lockhart stressed that it is essential to proper market functioning and regulation must be carefully crafted to preserve its role.

In April, Federal Reserve Chairman Ben Bernanke told the Sixth Biennial Community Affairs Research Conference in Washington, D.C. that while financial innovation can misfire, more often the benefits outweigh the downside.

Financial innovation has improved access to credit, reduced costs, and increased choice, he said. We should not attempt to impose restrictions on credit providers so onerous that they prevent the development of new products and services in the future.

That said, the recent experience has shown some ways in which financial innovation can misfire, the Fed chairman continued. Regulation should not prevent innovation, rather it should ensure that innovations are sufficiently transparent and understandable to allow consumer choice to drive good market outcomes.

Lockhart did not comment on the economic outlook or monetary policy in his brief remarks.

The thirteenth annual forum will examine the challenges of measuring, managing, and regulating risk in the face of continual development of innovative financial instruments, with several top economists and Federal Reserve officials presenting papers at the conference.

In particular, the conference program draws on experiences of the recent credit market crisis, historical perspectives on innovation and regulation, and analysis of the future of financial intermediation to explore tools and policies for effective risk management-both within firms and at the systemic level, the Atlanta Fed said.

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