09 July 2008

Fed Bernanke underlines need for more robust regulation

Congress should consider requiring consolidated supervision of holding company and ‘new tools’ for ensuring an orderly liquidation of big securities firms, Bernanke said and also proposed changes in the operation of settlement systems.

Congress should consider requiring consolidated supervision of holding company, Bernanke said. He also suggested that Congress considers whether ‘new tools’ are needed to allow for ensuring an orderly liquidation of big securities firms that were near bankruptcy,  together with a more formal process for deciding when to use those tools.

 

"Despite the complexities of designing a resolution regime for securities firms, I believe it is worth the effort," Bernanke said, adding that ‘a high bar’ for such action should be set so that it would not be chosen lightly.

 

Bernanke also announced possible changes in the operation of settlement systems. Both the operational performance under stress of key payment and settlements systems and their ability to manage counterparty and market risks are critical to the stability of the broader financial system, he said.

 

“Given how important robust payment and settlement systems are to financial stability, a strong case can be made for granting the Federal Reserve explicit oversight authority for systemically important payment and settlement systems”, he underlined.

 

Bernanke announced that the Fed may keep an emergency lending facility open past year-end. “We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets” he said.

 

Full speech

 

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