Policy makers were complacent, Fed's Kohn says

WASHINGTON, March 24 (Reuters) - U.S. Federal Reserve Vice Chairman Donald Kohn said on Wednesday that top policy makers were "a little complacent" about complex financial instruments that contributed to the global financial crisis.

Kohn, who announced earlier this month that he will step down from the Fed's No. 2 position after a 40-year career at the U.S. central bank, said the meltdown showed the Fed needed to be able to lend freely -- if at a penalty -- to a broad array of firms in times of trouble.

"We need to retain the ability to lend against good collateral to certain groups of sound, regulated, nonbank financial firms," Kohn said in prepared remarks for delivery at Davidson College in Davidson, North Carolina.

"I'm not suggesting that we establish permanent contingency liquidity facilities, just that the Federal Reserve retain the authority to create the tools necessary to meet liquidity needs."