‘Fed boosts too big too fail’

Bernanke said the Fed was moving into a more systemic mode of financial monitoring after failing to spot the seeds of the 2008 Wall Street meltdown more than four years ago.

“The step-up in our monitoring is motivated importantly by a shift in financial regulation and supervision toward a more macro-prudential, or systemic, approach,” Bernanke said in a speech to a Chicago Fed conference, according to the prepared text.

That approach supplements the central bank’s traditional focus on the health of individual institutions and markets, he said.
“Our economy has not yet fully regained the jobs lost in the recession that accompanied the financial near-collapse,” he said.

“And our financial system — despite significant healing over the past four years — continues to struggle with the economic, legal, and reputational consequences of the events of 2007 to 2009,” he said.

In addition to the lessons learned from the financial crisis, the more intensive monitoring was needed “because financial activities tend to migrate from more-regulated to less-regulated sectors”, Bernanke said.

“The second motivation for more intensive monitoring is the apparent tendency for financial market participants to take greater risks when macro conditions are relatively stable.”
Bernanke noted that the implementation of the Dodd-Frank financial reforms was still being developed, including the treatment of the so-called “too-big-to-fail” companies deemed crucial to the health of the financial system.

Under the Dodd-Frank Act, the largest bank holding companies are treated as systemically important financial institutions and have been subjected to Fed stress testing since 2009. — AFP.