Under Fire

WASHINGTON (AFP) – Federal Reserve chairman Ben Bernanke said Thursday the US central bank should keep its role as a regulator of the banking system as a way to promote financial market stability.

Bernanke added that the Fed “cannot and should not” be responsible for regulating the entire financial system, which including nonbanking firms such as hedge funds and others in the so-called “shadow banking system.”

But he said the Federal Reserve “is well suited to contribute significantly to an overall scheme of systemic regulation, particularly in the areas of consolidated supervision and macroprudential supervision.”

(January 14, 2010) In a letter to lawmakers, Bernanke argued that stripping the Fed of its supervisory role could end up doing more harm than good.

“Elimination of the Federal Reserve’s role in supervision would severely undermine the Federal Reserve’s ability to obtain in a timely way and to evaluate the information it needs to conduct its central banking functions effectively,” he said in a paper accompanying the letter.

Bernanke said the Fed has the “supervisory expertise” to keep this function.

“Active involvement in supervision ensures that the Federal