Fed Chairman Ben Bernanke, in Atlanta for a financial markets conference, vowed Monday to better monitor and mitigate risks brought about by the nation’s banks and financial institutions during the Great Recession.
Bernanke touched upon large bank supervision, European debt struggles, Dodd-Frank reforms and “shadow banking” during his 23-minute dinner speech at the Evergreen Marriott Conference Resort at Stone Mountain Park. He also touted progress made by the Federal Reserve and other agencies since the 2008 financial meltdown.
But Bernanke warned that “our financial system is constantly evolving, and that unanticipated risks to stability will certainly develop over time.”
“Indeed,” he continued, “an inevitable side effect of new regulations is that the system will adapt in ways that push risk-taking from more-regulated to less-regulated areas, increasing the need for careful monitoring and supervision of the system as a whole.”
Bernanke spoke to 125 bankers, financiers, traders, economists and government officials at the conference sponsored by the Federal Reserve Bank of Atlanta.
His remarks hewed closely to the supervisory progress made since the “darkest days of the financial crisis.” Little note was made of last week’s dismal jobs report – only 120,000 jobs were created in March – or the health of the economy on the whole.
Wall Street reacted crankily Monday to the jobs report and to prospects for the U.S. economy. The Dow Jones industrial average dropped 130.55 points.
“Our economy is still far from fully recovered,” Bernanke said. “The heavy human and economic costs of the crisis underscore the importance of taking all necessary steps to avoid a repeat of the events of the past few years.”
First up, the chairman noted, was last month’s survey of the financial health of the nation’s 19 largest bank holding companies. Only four of the institutions, including Atlanta-based SunTrust Banks, failed the so-called financial stress tests, the Fed reported last month. SunTrust said it will submit a new capital plan for a re-run of the stress test.
But non-bank financial firms, many without strong Fed oversight, contributed greatly to the financial crisis too. Bernanke, citing the Dodd-Frank reforms that put financial regulation in the hands of government, said the Fed and other agencies have taken steps to “close these regulatory gaps.”
Similar reform, the chairman noted, targets the shadow banking system in which credit is provided by “a collection of institutions, instruments and markets that lie at least partly outside of the traditional banking system,” such as hedge funds and private equity firms.
Bernanke concluded by insisting that Washington must continue “to develop an effective set of … policy indicators and tools, while pursuing essential reforms to the financial system.”
The conference continues Tuesday and Wednesday. Topics include: the future role of government in mortgage finance; the potential for new regulations to monitor shadow banking; and “systematically responsible” money market funds.
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