Fed’s Bernanke on Systemic Regulatory Framework

Federal Reserve chairman Ben Bernanke today called for consolidated supervision of both large banks and non-banks.  “The crisis has demonstrated that effective and timely risk management that is truly firmwide is vitally important for large financial institutions,” he says. “To make sure that that happens, all systemically important financial firms — and not just those affiliated with a bank — should be subject to a robust framework for consolidated supervision.” Such a regulatory framework, Bernanke says, allows for the evaluation of banks’ and non-banks’ capacity for managing risk, as well as their ability to comply with laws and regulations. But restrictions in current law on the matter drive a disparity between supervisory models over banks and other non-banking institutions like insurance and securities subsidiaries. This problem, he says, requires attention from Congress to allow for one consolidated supervisor to address the sound practices of all parts of an organization. His comments come the day after Federal Deposit Insurance Corp. (FDIC) chairwoman Sheila Bair asked a Senate committee on banking to consider a similar government regulatory framework to monitor global, systemic financial institutions considered “too big to fail.” She suggested the Fed could play an important role as systemic risk regulator to monitor and regulate the activities of systemically important institutions. US Treasury Department, Federal Reserve Board, FDIC and Securities and Exchange Commission could also join together in a system-wide regulatory monitoring effort, a systemic risk council, she said. Write to Diana Golobay.