US needs single regulator

US Federal Reserve chairman Ben Bernanke has called for a single regulator for all financial services and warned it must be set up with international cooperation to work properly.

Speaking at the Council on Foreign Relations in Washington DC yesterday, Bernanke said: “At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about the reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future. We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components. In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.”

He set out four areas of concern:

• “First, we must address the problem of financial institutions that are deemed too big--or perhaps too interconnected--to fail.
• “Second, we must strengthen what I will call the financial infrastructure--the systems, rules, and conventions that govern trading, payment, clearing, and settlement in financial markets--to ensure that it will perform well under stress.
• “Third, we should review regulatory policies and accounting rules to ensure that they do not induce excessive procyclicality--that is, do not overly magnify the ups and downs in the financial system and the economy.
• “Finally, we should consider whether the creation of an authority specifically charged with monitoring and addressing systemic risks would help protect the system from financial crises like the one we are currently experiencing.

But he said the US must work with other countries. “In light of the global nature of financial institutions and markets, the reform of financial regulation and supervision should be coordinated internationally to the greatest extent possible,” he said.

He demanded Congress take action. “Some of the policies I propose can be developed and implemented under the existing authority of financial regulators. Indeed, we are in the process of doing just that. In other cases, congressional action will be necessary to create the requisite authority and responsibility,” he said.