Fed Lobbies to Maintain Oversight of Banks

By Jeannine Aversa & Jim Kuhnhenn, Associated Press Writers

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke on Wednesday urged Congress not to scale back the Fed's regulatory authority over banks. He said the Fed needs the information it gleans from its bank oversight to set interest rates and gauge the health of the banking system.

A Senate bill to overhaul financial regulation would strip the Fed of its power to supervise state-chartered banks and bank holding companies with assets of less than $50 billion. That would leave the Fed to oversee only 35 big bank holding companies.

Critics have blamed lax regulation at the Fed and at other agencies for contributing to the financial crisis.

Testifying to the House Financial Services Committee, Bernanke once again acknowledged that the Fed's past regulatory failures played a role in the crisis. But he said, as he has before, that the central bank has improved its regulatory oversight.

Other testifying at Wednesday's hearing echoed some of Bernanke's arguments:

— Former Fed Chairman Paul Volcker also argued for the Fed to retain supervision over all the banks it now oversees. His reasons mirrored Bernanke's.

— Small banks expressed support for continued regulation by the Fed. Jeffrey Gerhart, president of Bank of Newman Grove, said the Fed would lose information about local economies, which affects interest rate decisions, if it no longer supervised small banks.

— Anil Kashyap, professor of economics and finance at the University of Chicago Booth School of Business, backed Bernanke's pitch for the Fed to retain its existing oversight.

— Allan Meltzer, a professor at Carnegie-Mellon University, said he doubted any regulator could prevent all risks to the financial system.

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