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‘More robust’ regulation needed for Wall Street firms: Bernanke

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Tuesday, July 8, 2008

Federal Reserve chairman Ben Bernanke called Tuesday for legislation to provide “more robust” supervision of Wall Street investment firms to help avert crises like the one that felled Bear Stearns.

Bernanke, speaking to a forum on mortgage lending, said regulatory loopholes helped precipitate the crisis in the US housing sector that spread to banks and investment firms that financed real estate speculation.

“The enormous losses and writedowns taken at financial institutions around the world since August, as well as the run on Bear Stearns, show that, in this episode, neither market discipline nor regulatory oversight succeeded in limiting leverage and risk-taking sufficiently to preserve financial stability,” Bernanke said.

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The Fed chief said the central bank was working with the Securities and Exchange Commission as well as a White House working group to help beef up oversight of the financial industry, including investment firms not directly under Fed supervision.

“In the longer term, legislation may be needed to provide a more robust framework for the prudential supervision of investment banks and other large securities dealers,” he said.

“Strong holding company oversight is essential and thus, in my view, the Congress should consider requiring consolidated supervision of those firms, providing the regulator the authority to set standards for capital, liquidity holdings, and risk management.”

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This article was posted: Tuesday, July 8, 2008 at 2:53 pm

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