Fed Wants Better Oversight of Financial Companies

WASHINGTON (AP) - The Federal Reserve is working to beef up
oversight of financial companies to better protect the nation from
another financial crisis in the future, Chairman Ben Bernanke said
Wednesday.

The Fed chairman's comments come as Congress moves closer to
sending President Barack Obama a final legislative package that
revamps the nation's financial structure to prevent a replay of the
recent financial crisis.

Bernanke welcomed key parts of that package in remarks prepared
for delivery to a conference in New York. At the same time, though,
Bernanke emphasized that the Fed is moving ahead on its own
reforms.

For instance, the Fed is working to strengthen capital
requirements for banks so that they'll have bigger and better
cushions to protect against any potential losses. And, the Fed is
collecting more information on linkages among financial companies
to better identify potential channels of financial contagion.

One of the lessons learned from the crisis is that the Fed can't
focus solely on the safety and soundness of individual banks, but
rather on the health of the financial system as a whole, Bernanke
said. The Fed has already moved to examinations that take this
broader-picture approach.

"Regulatory agencies must thus supervise financial institutions
and critical infrastructures with an eye toward overall financial
stability as well as the safety and soundness of each individual
institution and system," Bernanke said.

"Indeed, the crisis has demonstrated that a too-narrow focus on
the safety and soundness of individual institutions or systems can
result in a failure to detect and thwart emerging threats to
financial stability that cut across many firms or markets," he
explained.

Bernanke embraced provisions contained in both the Senate- and
House-passed financial overhaul measures that would create a
council of regulators - which includes the Fed - to police for
risky practices that could endanger the financial system.
Concentrating all such powers within a single agency, he said,
could create "regulatory blind spots."

The council, however, shouldn't be involved in rule-writing and
supervision, Bernanke said. Those functions should stay at the
relevant regulatory agencies, with the council acting in a
"coordinating role," he said.

Bernanke also welcomed provisions in the House and Senate bills that would allow for the safe dismantling of a big financial firm,
whose failure could put the economy in jeopardy. The mechanism is
similar to how the Federal Deposit Insurance Corp. shutters failing
banks.


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