Bernanke encourages regulation of large firms posing high risk

[Hazcat]

  By Silla Brush  -  10/01/09 09:54 AM ET

Federal Reserve Chairman Ben Bernanke on Thursday urged Congress to empower the central bank to regulate all large firms posing a systemic financial risk, and to create a council of federal regulators to monitor the entire system.

Bernanke said the Federal Reserve is "well suited" to oversee systemically important firms because of its current role "supervising large, diversified, and interconnected banking organizations." He offered the testimony to the House Financial Services Committee.

"For purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested with a single agency," Bernanke said.

But Bernanke also urged lawmakers to set up an oversight council, and said the broad task of monitoring and addressing systemic risks "may exceed the capacity of any individual supervisor."

Bernanke said the central bank continues to face heavy criticism from Democrats and Republicans on Capitol Hill who argue that the Fed was lax in regulating banks in the run-up to the financial crisis.

The Obama administration has proposed that the Fed oversee large firms for "systemic risk" and also that the government have an oversight council of the different regulators to monitor the system.

The proposal to give the Fed new authorities has come under scrutiny. Senate Banking Committee Chairman Chris Dodd (D-Conn.), for example, is considering granting most of the new authorities to the oversight council instead of to the Fed. House Financial Services Committee Chairman Barney Frank (D-Mass.) has talked about setting up a system of shared authority over systemic risk.

"There were some, myself included, who earlier thought the Federal Reserve would have a larger role than it will have," Frank said Thursday in his opening statement.

Bernanke defended the Fed in his testimony, saying that the central bank has "already taken a number of important steps to improve its regulations and supervision of large financial groups."

Bernanke also said he supported stronger consumer protections, but did not explicitly comment on the Obama administration's proposal for a Consumer Financial Protection Agency (CFPA) in his opening testimony. The Fed, which would lose its consumer protection powers to the new agency, has criticized various parts of that proposal.

Frank recently released a "report card" finding that the Fed failed to exercise its consumer protection responsibilities before the crisis.

The Fed committed trillions of dollars to support the nation's financial system as the crisis spread at the end of 2008 and beginning of 2009. President Barack Obama this year nominated Bernanke to a second term as chairman. The Senate has yet to hold a confirmation hearing.

http://thehill.com/homenews/administration/61063-bernanke-to-encourage-regulation-of-risky-firms