Sheila Bair, the head of the Federal Deposit Insurance Corp., on Wednesday told Congress new powers are needed to oversee such companies and suggested the FDIC could share those oversight duties with other regulators.
Regulators also must keep an eye on bonuses and other compensation practices to ensure they provide incentives to behave in ways that promote the long-run health of the bank. "Certainly an important lesson of the crisis is that the structure of compensation and its effect on incentives for risk-taking is a safety and soundness issue," Bernanke said.
Earlier this year, public and congressional outrage was sparked by millions of dollars in bonuses paid to employees of American International Group, which has been bailed out by the government four times.
On other issues, Bernanke said a government program to jump-start consumer and small-business lending called the Term Asset-Backed Securities Loan Facility, or TALF, should help ease stresses in the commercial real-estate market but won't be a "panacea."
The TALF, he said, after a "somewhat slow start is looking like it is beginning to pick up steam."