Bernanke Urges Rules Overhaul to Stem Risk Build-Ups

Bernanke Urges Rules Overhaul to Stem Risk Build-Ups - 3/10/2009

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Bernanke Urges Rules Overhaul to Stem Risk Build-Ups
Craig Torres and Scott Lanman

Bloomberg. March 10, 2009
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EXCERPT: Federal Reserve Chairman Ben S. Bernanke urged a sweeping overhaul of U.S. financial regulations in an effort to smooth out the boom-and-bust cycles in financial markets. “We should review regulatory policies and accounting rules to ensure that they do not induce excessive” swings in the financial system and economy, the central bank chief said today in remarks prepared for an address to the Council on Foreign Relations in Washington. Bernanke recommended that lawmakers and supervisors rethink everything from the amounts firms set aside against potential trading losses and deposit-insurance fees to protections for money-market funds. His remarks reflect a judgment that the U.S., just like emerging-market nations in the past, failed to properly manage a flood of capital over the past decade and a half. Bernanke also reiterated his call for an agency to take on overarching responsibility for financial stability. While he didn’t specify which regulator should take that job, he noted that the Fed was first formed to address banking panics and said the initiative would “require” some role for the central bank. Congress and the Obama administration are embarking on the broadest revamp of the oversight of U.S. finance since the Great Depression. Bernanke’s speech marks the Fed’s contribution to the policy debate. Ensuring Capital The Fed chief also reiterated that the central bank, U.S. Treasury and other regulators “will take any necessary and appropriate steps” to ensure banks have capital to “function well in even a severe economic downturn.” “Governments around the world must continue to take forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit,” Bernanke said today. “Until we stabilize the financial system, a sustainable economic recovery will remain out of reach.”

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