Thursday
Oct012009
More Oversight Necessary To Protect Consumers Says Bernanke
Thursday, October 1, 2009 at 11:51AM
Federal Reserve Chairman Ben Bernanke wants Congress to make it less profitable for financial firms to collapse. On Thursday, he explained to members of the House Financial Services Committee that they should look into removing incentives for firms to become “too big to fail.”
"One of the big concerns about these large firms [is] they are not subject to the discipline of the market because lenders do not believe that this firm will be allowed to fail. That has to be eliminated and fixed... I would not be satisfied with any resolution authority that did not have a strong presumption and a strong mechanism for allowing these firms, when being taken over by the government, to impose significant losses on not only shareholders but also creditors,” Bernanke said, referring to his support of a new consumer protection agency proposed by the Obama administration.
In addition to the creation of an oversight council, or “resolution regime,” comprised of various financial agency and department representatives, to “monitor and identify emerging systemic risks across the full range of financial institutions and markets,” Bernanke’s suggestions for financial reform also included allowing Congress to grant federal agencies the power to respond to risks posed by firms under their scope.
After proposing tighter regulatory measures for large firms, such as Lehman Brothers, Bernanke advised the committee to consider stricter regulatory lending policies for Fannie Mae and Freddie Mac, as well as the Federal Housing Administration.
"I think in the near future we need to have a plan for Fannie and Freddie...I think the GSEs do need to be addressed in the near term, not just for systemic risk reasons, but because there's a lot of uncertainty in housing and what's going to happen to the housing structure, housing finance system. So I hope that in the very near future, I believe that's the intention, I hope in the very near future we'll have some proposals on that," he said.
When asked by Rep. Jeb Hansarling (R-Texas), the committee's top Republican, whether or not the current administration’s proposed agency would negatively impact the job sector, Bernanke replied, “It depends,” adding later that only an overreaction - in the form of too much regulation - on the part of Congress would threaten the jobs market.
"One of the big concerns about these large firms [is] they are not subject to the discipline of the market because lenders do not believe that this firm will be allowed to fail. That has to be eliminated and fixed... I would not be satisfied with any resolution authority that did not have a strong presumption and a strong mechanism for allowing these firms, when being taken over by the government, to impose significant losses on not only shareholders but also creditors,” Bernanke said, referring to his support of a new consumer protection agency proposed by the Obama administration.
In addition to the creation of an oversight council, or “resolution regime,” comprised of various financial agency and department representatives, to “monitor and identify emerging systemic risks across the full range of financial institutions and markets,” Bernanke’s suggestions for financial reform also included allowing Congress to grant federal agencies the power to respond to risks posed by firms under their scope.
After proposing tighter regulatory measures for large firms, such as Lehman Brothers, Bernanke advised the committee to consider stricter regulatory lending policies for Fannie Mae and Freddie Mac, as well as the Federal Housing Administration.
"I think in the near future we need to have a plan for Fannie and Freddie...I think the GSEs do need to be addressed in the near term, not just for systemic risk reasons, but because there's a lot of uncertainty in housing and what's going to happen to the housing structure, housing finance system. So I hope that in the very near future, I believe that's the intention, I hope in the very near future we'll have some proposals on that," he said.
When asked by Rep. Jeb Hansarling (R-Texas), the committee's top Republican, whether or not the current administration’s proposed agency would negatively impact the job sector, Bernanke replied, “It depends,” adding later that only an overreaction - in the form of too much regulation - on the part of Congress would threaten the jobs market.
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