Posted on 01 Oct 2009
Fed Chairman Ben Bernanke said in prepared testimony to a congressional panel Thursday morning that a council of U.S. regulators -- rather than the Federal Reserve alone -- should be charged with monitoring threats to the U.S. financial system.
"All federal financial supervisors and regulators -- not just the Federal Reserve -- should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities," Mr. Bernanke said.
Mr. Bernanke's view that systemic risk-monitoring should be a group effort could address some fears that the Obama administration's sweeping plan to rework the nation's finance rules would give the Fed too much power.
The Obama administration and the Fed have called on Congress to rework financial regulations to better prevent future crises. While the administration wants Congress to approve a bill this year, key proposals that would boost the Fed's power to regulate the financial system for threats to financial stability have come under fire.
Critics argue that the Fed should scale back its regulatory role and focus more intensely on monetary policy.
Meanwhile, analysts and former Fed officials have questioned whether the central bank even has adequate resources to be a new uber-regulator of systemic risks.
In his testimony, Mr. Bernanke argued that the Fed is more than capable of regulating large, interconnected banks and nonbanks to ensure they don't pose a threat to the financial system. But when it comes to monitoring the broader financial system, all regulators should be involved, he said.
"An oversight council made up of the agencies involved in financial supervision and regulation should be established," he said. That group should identify risks to financial stability, address regulatory gaps and coordinate on efforts to protect the financial system, he said.
Earlier this month, the White House's top economic adviser also suggested that other regulators could join the central bank in regulating systemic risk.
"Systemic-risk regulation has a number of elements," National Economic Council Director Lawrence Summers told a group of reporters.
Still, it isn't clear if that's enough to give momentum to the broad, controversial plan to overhaul financial regulations.
Mr. Bernanke is still likely to face tough questions from the House Financial Services Committee.
Meanwhile, the Fed chairman didn't specifically address in his prepared testimony another controversial proposal that would strip the Fed of its consumer-protection role. Instead, Mr. Bernanke simply stated that "it is vitally important" that consumers be protected from unfair financial practices.