Bernanke: Regulators setting sights on 'too big to fail' problem

"A financial system dominated by too-big-to-fail firms cannot be a healthy financial system," he said in a speech to community bankers gathered in San Diego. "We are developing more stringent prudential standards for banking firms with assets greater than $50 billion and all nonbank financial firms designated as systemically important by the Financial Stability Oversight Council."

Dodd-Frank enabled regulators to impose stronger capital and leverage requirements on systemically important firms, as well as require them to periodically undergo stress tests and to develop resolution plans. The ultimate goal of that section of Dodd-Frank is to develop rules that make it less likely a large financial firm will fail, and if it does fail, minimize the impact felt across the financial system, Bernanke said.

Along similar lines, he added that the Fed and other government regulators are working to establish stronger requirements for banks on an international scale, highlighted by the new Basel III standard, a global regulatory standard on capital and liquidity requirements reached in December.

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"A more stable financial system will benefit all banking institutions and, of course, our economy as a whole," he said. "We are working to adopt the Basel III framework in the United States in a timely manner."

Bernanke said that since Dodd-Frank was mainly targeted at the largest financial firms, community banks will enjoy a "more level playing field" once Wall Street reform has been enacted.

He noted that community banks play a key role in the economic recovery and that those smaller banks were beginning to develop healthier balance sheets.

"Although we are not yet where we would like to be, the good news is that many community banks are recovering and reporting stronger performance," he said.