Bernanke urges Congress to let Fed keep functions

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke urged Congress Wednesday to let the Fed keep all of its banking oversight, arguing that information gleaned from that process helps the central bank guide the US economy.

Testifying at a House hearing, Bernanke waged a fresh battle against Senate efforts to scale back the Fed’s role in overseeing the nation’s banks.

The Fed boss argued that policymakers factor information they get from the Fed’s role as bank regulator into their decisions on interest rates. And, Bernanke said its banking duties give the Fed insights into the health of the entire banking system.

“The insights provided by our role in supervising a range of banks, including community banks, significantly increases our effectiveness in making monetary policy and fostering financial stability,” Bernanke told the House Financial Services Committee.

Bernanke’s testimony comes as the Fed faces a significant shift in its supervisory duties.

In an effort to overhaul the nation’s financial regulatory structure, Senate Banking Committee Chairman Christopher Dodd has offered legislation that 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 with 35 of the biggest bank holding companies under its supervision.

It currently oversees about 5,000 bank holding companies, about 850 smaller banks that are both state-chartered and are members of the Federal Reserve system and some foreign banks operating in the United States.

“Notably, the Federal Reserve’s role as a supervisor of state member banks of all sizes, including community banks, offers insights about conditions and prospects across the full range of financial institutions, not just the very largest, and provides useful information about the economy and financial conditions throughout the nation,” Bernanke said. “Such information greatly assists in the making of monetary policy,” he said, referring to the Fed’s role in setting interest rates to influence economic growth, employment and inflation.

Dodd’s bill, however, would also give the Fed new powers to oversee nonbank financial firms that are so large and interconnected that their failure could pose a risk to the economy.

Such firms could include insurance giant American International Group Inc., or General Electric Co.’s GE Capital business.

But with its narrower authority, the Fed’s system of 12 regional banks could face profound changes. The Kansas City Federal Reserve Bank and the St. Louis Federal Reserve Bank, for instance, would have no banks under their supervision.

The Obama administration has supported a broader supervisory role for the Fed. Legislation passed by the House overhauling the regulatory landscape doesn’t trim the Fed’s banking duties.