- The Washington Times - Friday, October 2, 2009

Federal Reserve Chairman Ben S. Bernanke told a skeptical Congress on Thursday that the central bank is “well suited” to oversee colossal financial companies whose failure could endanger the entire economy.

But his written testimony did not mention the Fed losing some of its consumer-protection duties. The Fed chief previously had criticized the Obama administration for its plan to strip the central bank of some of those powers.

Testifying before the House Financial Services Committee, Mr. Bernanke said Thursday only that protecting consumers from abusive practices involving mortgages, credit cards and other financial products is “vitally important.”

In past appearances on Capitol Hill, Mr. Bernanke laid out a spirited defense of why the Fed should keep those powers. The administration wants to create a consumer-protection agency for risky financial products.

Rep. Melvin Watt, North Carolina Democrat, was stunned by what he thought was Mr. Bernanke’s short shrift to the consumer-protection issue. “Five sentences on consumer protection when everything else that we talked about this morning get substantially more space,” Mr. Watt said. “It’s just not a good message to send.”

During the hearing, Mr. Bernanke conceded that the Fed didn’t do the job it should have in protecting consumers, but said improvements are being made. He suggested the central bank could take further steps to strengthen such oversight.

“We are competent and have the skills … I think we can do that,” he said.

Pressed later to state a position on whether a new consumer agency is needed, Mr. Bernanke responded: “I’m not going to tell Congress what to do.”

But Mr. Bernanke did lay out a case for additional power over so-called “too big to fail” financial companies, which could include insurance companies, hedge funds and others beyond the big banks traditionally overseen by the Fed.

In fielding questions, Mr. Bernanke said the “focus” in that regard should remain on financial firms, rather than on other types of companies.

As part of a sweeping rewrite of the nation’s financial rule book, the administration has proposed tapping the Fed to regulate those companies, and Mr. Bernanke said the central bank has the expertise to best carry out those duties.

For both accountability and effectiveness, that power is “best vested with a single agency,” Mr. Bernanke said. “I believe that the expertise we have developed in supervising large, diversified and interconnected banking organizations … makes the Federal Reserve well suited to serve as the consolidated supervisor.”

The Fed would be willing to concede some of its bailout power if Congress creates a new mechanism to safely wind down big financial firms on the brink, something along the lines of what the Federal Deposit Insurance Corp. does with banks, Mr. Bernanke said. The Fed’s bailout of insurance giant American International Group Inc. and its financial backing of JPMorgan’s takeover of Bear Stearns angered the public and some in Congress.

On another matter, Mr. Bernanke said the Fed is “about to issue” a proposal cracking down on executive pay. It seeks to make sure that bonuses and other compensation don’t encourage undue risk-taking that could hurt the company or the larger financial system.

Asked whether a crisis is brewing in the troubled commercial real estate market, Mr. Bernanke responded: “I don’t think so. But we’ll have to watch it carefully.”

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