Bernanke says Fed should regulate all banks

Federal Reserve building, Washington, D.C.

Federal Reserve Chairman Ben S. Bernanke opposes a draft bill now in the Senate which would remove much of the central bank’s supervisory role and limit its authority to regulation of large bank holding companies. The bill, proposed by Senate Banking Committee Chairman Christopher Dodd, would limit the Fed’s supervisory authority to banks with more than $50 billion in assets. Smaller banks would be regulated by the FDIC and the Office of the Comptroller of the Currency. By contrast, under a House version of the bill, the Federal Reserve would keep most of its bank supervisory duties.  Neither bill would have any bearing on personal installment loans from private money lenders.

Bernanke: Fed promotes stability

Bernanke told the House Financial Services Committee that the central bank does not want the responsibility of regulating only those banks that are “too big to fail.” CNN Money quotes Bernanke as saying that the Fed’s oversight of all banks “significantly improves its ability to carry out its central banking functions, including making monetary policy, lending through the discount window, and fostering financial stability.” According to Business Week, Bernanke contends that the Fed is “uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole.”

Dodd: Continued risk of bailouts promotes instability

Dodd, who has been highly critical of the Fed’s banking supervision, hopes the proposed bill will prevent future crises requiring taxpayer-funded bailouts of large banking firms. Bernanke, however, believes that the central bank should retain oversight of banks of all sizes.

The Federal Reserve currently oversees about 5,000 bank holding companies and about 850 state member banks. Supervisory authority is delegated to 12 regional Fed banks by the Board of Governors in Washington. Under Dodd’s draft bill, the Fed would supervise only about 35 of the largest financial institutions. Legislators are scheduled to review and amend Dodd’s draft bill on March 22.

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