Turf War: Bernanke Fights For Fed’s Powers

By Lindsey Ellerson

Mar 17, 2010 7:11pm

ABC News’ Matthew Jaffe reports: Federal Reserve chairman Ben Bernanke today fought to protect the central bank’s regulatory turf after a key Democratic senator earlier this week proposed reforms that would slash the Fed’s oversight of smaller banks. “We are quite concerned by proposals to make the Fed a regulator only of the biggest banks,” Bernanke told the House Financial Services Committee at a hearing this afternoon. “It makes us essentially the too-big-to-fail regulator. We don’t want that responsibility.” Bernanke argued that reducing the Fed’s oversight would be “a bad idea” because the central bank needs to be connected to both Wall Street and Main Street in order to understand the country’s complete economic picture. “We need to see what’s happening in the entire financial system,” he said. Senate Banking Committee boss Chris Dodd on Monday unveiled a proposal to slash the Fed’s oversight of state-chartered banks and bank-holding companies with assets under $50 billion. Dodd has said the Fed failed in the build-up to the financial crisis because the central bank was stretched thin by too many duties. At today’s hearing the House panel’s ranking Republican Spencer Bachus also ripped the Fed’s supervisory record, calling it “inadequate.” But former Fed boss – and current adviser to President Obama – Paul Volcker told lawmakers that he agreed with Bernanke that the Fed’s powers should not be curtailed.  While Dodd’s bill has yet to move past the Senate Banking committee, the House passed its reform measure last year. Today House Financial Services Committee chairman Barney Frank said the push to finalize financial reform will succeed because “the desire and the need for a bill will be greater than any individual differences.”  The latest evidence of the need for reform came just days ago when a bankruptcy examiner released a report accusing Lehman Brothers of routinely hiding $50 billion in debt from the public. Bernanke today noted that the Fed was not Lehman’s supervisor and therefore could not be blamed for any oversight lapses. “It was not our responsibility or our capacity in the middle of the crisis to look at that,” he stated. Meanwhile, Frank said his panel would hold a hearing on the issue soon. -Matthew Jaffe

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