Bernanke: Fed Must Oversee Small Banks

ORLANDO, Fla. (TheStreet) -- Federal Reserve Chairman Ben Bernanke Saturday defended the central bank's oversight of small banks and urged Congress to address the problem of financial institutions that are "too big to fail."

In a speech to the Independent Community Bankers of America's meeting in Orlando, Fla., Bernanke said that if Congress strips the Fed of authority to supervise smaller banks it will impair the central bank's ability to assess the health of the nation's financial system, the AP reported.

Banking reform legislation sponsored by Sen. Christopher Dodd (D., Conn.) would take away the Fed's power to supervise state-chartered banks and bank holding companies with assets of less than $50 billion, the AP noted. It would leave the Fed with oversight of only 35 large bank holding companies.

The Senate Banking, Housing and Urban Affairs Committee, which Dodd leads, plans to debate the legislation Monday.

> > Bull or Bear? Vote in Our Poll

In his speech Saturday, Bernanke also urged Congress to develop a method for unwinding large financial companies whose failure could jeopardize the nation's economy, the AP reported. Such firms are often described as "too big to fail."

Bernanke reiterated support for a system similar to the one used by the Federal Deposit Insurance Corp. to wind down failing banks, the AP added.

"It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms," the AP quoted Bernanke as saying. "If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation."

>To order reprints of this article, click here: Reprints