Urges Regulatory Reform Bernanke: Fed Chief Lays Out To stre

 

Thursday, Mar 12,2009, 2:16:03 PM   Click:

Copyright: Chicago Tribune
Source: Chicago Tribune
Wordcount: 513


Mar. 11 - WASHINGTON - Federal Reserve Chairman Ben Bernanke on Tuesday called for a major reform of the financial regulatory system to create more "holistic" in the supervision of one of the largest financial institutions in order to avoid repetition of the problems that have contributed to this global financial crisis.

Bernanke, speaking to the Council on Foreign Relations, presented a four-pronged strategy, he said that could provide better regulation and help reduce systemic risk.

It included better supervision of financial institutions deemed "too big to fail" and improving the financial infrastructure to enable more transparency in transactions involving new financial instruments, such as credit-default swaps.

It also included a regulatory review to ensure they do not contribute to constraints on the financial system during the economic downturn. Such a regulation under consideration the conditions that banks keep more money in hand, a rule that many have said has led financial institutions to reduce lending.

The strategy also included the creation of an agency to monitor potential hazards to the entire financial system.

"We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its components," said Bernanke. "In particular, strong and effective regulation and supervision of banking institutions although necessary to reduce systemic risk, are not sufficient by themselves to achieve that goal. "

For financial institutions considered "too big" or "too interconnected" to fail, "said Bernanke, the regulators should apply a more thorough examination. And because companies are the largest banks in the world, bodies regulators around the world must apply the same rigor.


"Any company whose absence would pose a systemic risk should receive particularly close surveillance monitoring its risk taking, risk management and financial situation, and be held to high standards of capital and liquidity," said Bernanke .

He also called for ending the balkanization how bank holding companies are regulated, with different agencies regulating different parts of the company. The central banker urged the consolidation of the greater part of banking supervision to prevent the risk of falling through the cracks.

Federal officials have acted quickly and repeatedly during the year to support a number of financial institutions whose size is the failure of their potential danger to the entire financial system. Citigroup Inc., American Insurance Group Inc., Fannie Mae and Freddie Mac have received hundreds of billions in taxpayer dollars to prevent their failure.

The repetition of rescue operations have fueled outrage among legislators and taxpayers who have come to see the companies as mismanaged bottomless pit of touch executives whose first priority seems to be enriching themselves.

At a recent Capitol Hill appearance, Bernanke said he was angered by the situation of AIG since the unnecessary risks of the company has not only threatened to unhinge the entire financial system, and also to absorb federal resources.

In his speech, Bernanke called on Congress to provide a legal framework that allows the insolvency of non-banking institution, such as AIG to be resolved in an orderly fashion, like bank failures are dealt with at the Federal Deposit Insurance Corp. not to take action over a bank.

fjames@tribune.com



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