Bernanke defends Fed's role of banking supervisor

U.S. Federal Reserve Chairman Ben Bernanke said Wednesday that the central bank is "uniquely suited" to supervise large and small banks across the country.

"The Federal Reserve's involvement in regulation and supervision confers two broad sets of benefits to the country," Bernanke said in his testimony at a House hearing.

"First, because of its wide range of expertise, the Fed is uniquely suited to supervise large, complex financial organizations and to address both safety and soundness risks and risks to the stability of the financial system as a whole," Bernanke said.

"Second, the Federal Reserve's participation in the oversight of banks of all sizes significantly improves its ability to carry out its central banking functions, including making monetary policy, lending through the discount window, and fostering financial stability."

Bernanke's testimony comes as the Fed faces a significant shift in its supervisory duties.

On Monday, U.S. Senate Banking Committee Chairman Christopher Dodd proposed a financial reform bill that would strip the Fed of its power to supervise state-chartered banks and bank holding companies with assets of less than 50 billion dollars.

That would leave the Fed with 35 of the biggest bank holding companies under its supervision.

According to Bernanke's testimony, the central bank currently oversees about 5,000 bank holding companies, about 850 smaller banks that are both state-chartered and are members of the Federal Reserve system and some foreign banks operating in the United States.

The Fed chief argued that the Federal Reserve's role as a supervisor of state member banks of all sizes, including community banks, offers insights about conditions and prospects across the full range of financial institutions, not just the very largest, and provides useful information about the economy and financial conditions throughout the nation.

"Such information greatly assists in the making of monetary policy," he said, referring to the Fed's role in setting interest rates to influence economic growth, employment and inflation.

The Obama administration has supported a broader supervisory role for the Fed. Financial regulatory legislation passed by the House last December doesn't trim the Fed's banking duties.

Currently, the financial reform is in the process of the Senate, where the role of the Fed has become one of the most debatable issues.

[Source: Xinhua, Washington, 17Mar10]

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