Tags: FEDERAL RESERVE | GOVERNMENT | REGULATION | CNBC BUSINESS NEWS | BUSINESS NEWS

Fed's Duke Warns Against Narrow Regulatory Approach

Thursday, 18 Mar 2010 09:07 AM

Federal Reserve Governor Elizabeth Duke said on Thursday the U.S. central bank's broad supervisory authority gives it a better understanding of the economy's condition and it would be a mistake to narrow that focus to only larger banks.

Speaking to the American Bankers Association, she said broad-based knowledge of banks' condition was "specially helpful" to Fed policymakers during the financial crisis when they had to respond quickly to changing conditions.

"So I would hate to see the Federal Reserve become focused too narrowly on the activities of just the largest institutions," Duke said.

A proposal in a Senate regulatory overhaul bill would shift supervision of thousands of banks to other regulators and Fed officials are strongly resisting it.

Fed Chairman Ben Bernanke argued against it on Wednesday before Congress, saying that doing so would be "a useful source of information lost" to policy makers.

Revised legislation unveiled on Monday by Senate Banking Committee Chairman Christopher Dodd would allow the Fed to oversee banks and important financial firms with assets greater than $50 billion.

But the measure would pull the Fed out of supervision of more than 5,000 smaller bank holding companies and state-chartered banks, handing those responsibilities to the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

Duke suggested that was a potential threat to effective monetary policymaking.

She said that one reason the Fed was able to smoothly inject trillions of dollars of liquidity into the banking system during the financial crisis was because it has a sound basis of knowledge of banks' condition from supervising them.

She also said proposals in the Dodd bill essentially would leave the U.S. central bank with no role in consumer protection and said she was "puzzled" about how a proposed consumer financial protection agency housed at the fed was supposed to function in relation to the central bank.

Duke said the Fed brings considerable strengths and abilities to the task of consumer protection that should be taken into account.

Lawmakers have been critical of the Fed's regulatory performance before the 2007-2009 financial crisis, with Dodd characterizing it as an "abysmal failure."

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Federal Reserve Governor Elizabeth Duke said on Thursday the U.S. central bank's broad supervisory authority gives it a better understanding of the economy's condition and it would be a mistake to narrow that focus to only larger banks. Speaking to the American Bankers...
FEDERAL RESERVE,GOVERNMENT,REGULATION,CNBC BUSINESS NEWS,BUSINESS NEWS
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2010-07-18
 

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