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Bernanke says council must eye risk, not just Fed

A broad-based oversight council of financial regulators, not just the US Federal Reserve, should be set up to monitor systemic risk to the economy, Federal Reserve Chairman Ben Bernanke said in text of remarks to be delivered to Congress, obtained by Reuters.

In addition, all systemically important financial firms should be subject to a consolidated regulator, whether or not the firms own banks, Bernanke said.

His remarks came amid growing skepticism in Congress about an Obama administration proposal to give the Fed the unquestioned lead role in policing the economy for systemic risk, in coordination with an inter-agency council.

Bernanke's comments stressed the importance of such a council, especially in assessing the very broadest sort of risks posed by interactions of institutions and markets.

“For purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested with a single agency,” Bernanke said in the text.

“However, the broader task of monitoring and addressing systemic risks that might arise from the interaction of different types of financial institutions and markets -- both regulated and unregulated -- may exceed the capacity of any individual supervisor,” he said.

“Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole,” he said.

On another front, Bernanke said, a new “special resolution authority” should be created that would allow the government to wind down a failing systemically important financial institution, Bernanke argued.

Policymakers should also ensure that consumers are protected from unfair and deceptive practices in their financial dealings, he said.

Bernanke is due to testify before the US House of Representatives Financial Services Committee on Thursday. (Reuters)