Fed Chairman Bernanke Offers a Four-point Strategy for a New Regulatory Framework
Federal Reserve Chairman Ben S. Bernanke called for a broad reworking of regulations governing the financial system to guard against catastrophic meltdowns like the one that has hobbled the global economy since late 2007. In remarks (full text) today before the Council on Foreign Relations in Washington, D.C., the Fed chairman said: "We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim."
Bernanke then identified four key elements for such a strategy: "First, we must address the problem of financial institutions that are deemed too big -- or perhaps too interconnected -- to fail. Second, we must strengthen what I will call the financial infrastructure -- the systems, rules, and conventions that govern trading, payment, clearing, and settlement in financial markets -- to ensure that it will perform well under stress. Third, we should review regulatory policies and accounting rules to ensure that they do not ... overly magnify the ups and downs in the financial system and the economy.
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