Fed pushes Congress to allow broader oversight of firms

Congress should broaden financial regulators' oversight authority, Federal Reserve Chairman Ben Bernanke said Friday.

Bernanke urged lawmakers to give regulatory institutions the ability to overlook all firms which play an important parts in financial markets, not just traditional banking, over which they have maintained oversight.

"The recent financial crisis clearly demonstrated that risks to the financial system can arise not only from banks, but also from other financial firms -- such as investment banks or insurance companies -- that traditionally have not been subject to the type of regulation and consolidated supervision applied to bank holding companies," Bernanke said in a speech before an economic conference hosted by the Federal Reserve Bank of Boston.

"To close this gap, the Congress should ensure that all systemically important financial institutions are subject to a robust regime for consolidated prudential supervision," the Fed chairman added.

Bernanke defended government intervention into the markets over the past year to stabilize the financial system, but said that new mechanisms for the government, as well as rules for companies, are needed to prevent similar market turmoil again.

Bernanke said that in addition to new rules and regulations, for instance, federal regulators would need the ability to "wind down" companies instead of having to choose between bankruptcy and bailouts -- an ability for which he's pushed for some time now.

"Regulators and supervisors can do a great deal, but comprehensive financial reform requires action by the Congress," he said. "Strengthening consolidated supervision, setting up a mechanism (such as a systemic oversight council) to identify and monitor risks to financial stability, and creating a framework that allows for the safe unwinding of failing, systemically critical firms are among the essential ingredients of a new system that will reduce the probability of future crises and greatly mitigate the severity of any that occur."

---