Fed is mulling different approaches for how much capital big banks must hold
WASHINGTON (MarketWatch) -- Federal Reserve Chairman Ben Bernanke on Thursday said consumer protection is critical, but he didn't discuss whether he would support the creation of an independent agency.
"Policymakers should ensure that consumers are protected from unfair and deceptive practices in their financial dealings," Bernanke said in testimony prepared for delivery to a House Financial Services Committee.
Bernanke's testimony comes as House Financial Services Committee Chairman Barney Frank, D-Mass., has begun work on an independent agency that would strip consumer-protection supervision and enforcement responsibility from the Fed and other bank regulators, which lawmakers have lambasted for failing to protect consumers from sub-prime and other types of problem loans.
Bernanke has previously said that he would support an independent consumer-protection agency but that it shouldn't take consumer supervision responsibilities away from the Fed.
In addition to new consumer protections, Bernanke also discussed efforts underway at the central bank and at other bank regulators to expand capital standards for large financial institutions whose collapse could cause collateral damage to the markets. Bernanke said the Fed would adjust capital standards based on the systemic importance of the firm.
However, he added that the agency was still mulling a few ideas for what kind of capital these institutions would be required to hold.
"Options under consideration in this area include requiring systemically important institutions to hold aggregate levels of capital above current regulatory norms or to maintain a greater share of capital in the form of common equity or instruments with similar loss-absorbing attributes, such as 'contingent' capital that converts to common equity when necessary to mitigate systemic risk," Bernanke said.
In testimony, Bernanke also said the agency is following up controversial stress tests it completed on 19 of the largest U.S. institutions in the spring with an "enhanced quantitative surveillance program." The Fed's program, which is for large financial institutions whose collapse could cause collateral damage to the markets, would combine examinations of an individual institution with broader market analysis.
"[The program] will use supervisory information, firm-specific data analysis, and market-based indicators to identify emerging risks to specific firms as well as to the industry as a whole," Bernanke said.
