Fed chief makes case to keep all banking oversight

WASHINGTON - Federal Reserve Chairman Ben Bernanke urged Congress yesterday to let the Fed keep all of its banking oversight, arguing that information gleaned from that process helps the central bank guide the 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 policy-makers factor information they get from the Fed's role as bank regulator into their decisions on interest rates. And, he 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.

To overhaul the nation's financial regulatory structure, Senate Banking Committee chairman Christopher Dodd (D-Conn.) has offered a bill to 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.

The Fed now 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.

Critics blame lax regulation at the Fed and at other agencies for contributing to the financial and economic crises. Bernanke once again acknowledged deficiencies and said the Fed is taking steps to beef up oversight.

Dodd's bill would also give the Fed new powers to oversee nonbank financial firms so large that their failure could pose a risk to the economy. - AP