Paul Volcker, an economic adviser to President Barack Obama, told a group of business leaders Thursday that the Federal Reserve should not be stripped of its powers to oversee financial markets.
Volcker, who was Fed chairman from 1979 to 1987, said any regulatory changes to respond to the financial crisis should preserve a powerful role for the Fed, though not by weakening other government arms like the FDIC, which insures bank deposits.
"The central bank should maintain a robust presence with real authority," Volcker told a lunch gathering of the Economic Club of New York.
Volcker's remarks came as Fed Chairman Ben Bernanke argued in a letter to Congress released Thursday that plucking the central bank's power to oversee banks would make it harder for policymakers to gather the information needed for critical roles like setting interest rates.
Senate Banking Committee Chairman and Connecticut Democrat Christopher Dodd has said he wants to trim the Fed's reach and do away with its role in overseeing banks as part of an overhaul of the financial system. That Obama administration and House lawmakers are not seeking to limit the Fed's power.
The remarks before a packed ballroom of financial heavyweights coincided with the second day of hearings by the Financial Crisis Inquiry Commission, a 10-member panel created by Congress to explore the causes of the 2008 financial meltdown.
Volcker also said Obama's proposal to tax banks to recover costs tied to the financial rescue was justified. If approved by Congress, the tax would last at least 10 years and bring in about $90 billion, according to the White House.
"It seems not an unreasonable response given the fact that he's got to do something," Volcker said, referring to the president.
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