Safe you Finance

Congressional approval of an Obama administration plan to create a “systemic risk” regulator for the U.S. economy looks more likely after lawmakers noted a change in tone by the Federal Reserve on Thursday.

“We’re on a course now to perhaps put together something that can be accomplished,” said Democratic Representative Paul Kanjorski at a House of Representatives committee hearing where Fed Chairman Ben Bernanke testified on the issue.

In remarks to the House Financial Services Committee, Bernanke emphasized that a new council of financial regulators, not just the Fed, should monitor “systemic risk” to the economy. The Fed chairman said that this position was not new.

But lawmakers detected a shift in tone that could help the administration’s financial reform program move forward on Capitol Hill, where it has been overshadowed recently by other issues such as healthcare reform.

“There were some, myself included, who earlier this year thought that the Federal Reserve would have a larger role in this. Now it looks like it will be part of a conciliar structure,” said committee Chairman Barney Frank.

The comments from Kanjorski, Frank and Bernanke came amid growing skepticism in Congress about the administration’s proposal to give the Fed the lead role in policing systemic risk, albeit in coordination with an inter-agency council.

Bernanke told the committee the Fed is “well suited” to supervise major financial institutions of systemic importance, and he said those firms should answer to a consolidated regulator, whether or not the firms own banks.

But an inter-agency council should be used to monitor the very broadest sorts of risk, he said, underscoring an idea embraced by increasingly vocal critics of the Fed.

While the administration has backed the idea of creating an inter-agency council to work with the Fed, it has been firm on its determination to place the most power in the Fed.

“We have never supported, and the administration has never supported, a situation in which the Fed would be some kind of untrammeled super-regulator,” Bernanke added.

“That has never been contemplated. The original administration proposal proposes a council and we support the council. We think it has a very valuable role to play.”

GLOBAL REFORM PUSH

In the aftermath of the worst financial crisis in generations, President Barack Obama and other world leaders are trying to tighten regulation of banks and capital markets.

The effort got a boost from the Group of 20 summit meeting in Pittsburgh last week, where leaders urged major changes. But in the United States, banks are resisting proposed reforms, including one to create a financial consumer watchdog agency.

Bernanke said part of the origin of that proposal is disappointment with Fed’s consumer protection performance. 

Read more