Bernanke to Congress: Now's the Time

Fed Chairman Ben Bernanke urged Congress on Friday to enact legislation overhauling the nations' financial regulatory system to prevent a repeat of the banking and credit turmoil that created the financial crisis.

“With the financial turmoil abating, now is the time for policymakers to take action to reduce the probability and severity of any future crises,” Mr. Bernanke said in remarks to a Fed conference in Chatham, Mass.

The Fed has recently been moving to strengthen oversight of banks, and intensify consumer protections. On Thursday it announced a sweeping proposal to police banks’ pay policies to make sure they do not encourage top executives and other employees to take outsize risks.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to make, Mr. Bernanke said.

At the top of Mr. Bernanke’s list: Congress must set up a mechanism similar to the FDIC to safely wind down big financial firms whose failure could endanger the entire financial system.

And, the costs for such a mechanism should be paid for through an assessment on the financial industry, not by taxpayers, the Fed chief said.

Moreover, Congress needs to set up better systems for regulators to monitor risks lurking in the financial system, he said.

The Obama administration has proposed such action as part of its revamp of financial rules. Its plan would expand the Fed’s powers over big financial institutions but reduce it over consumers. Congress, however, is leery of expanding the Fed’s reach because it and other regulators failed to crack down on problems that led to the crisis.

A House panel on Thursday approved a piece of the Obama plan, the creation of a federal agency devoted to protecting consumers from predatory lending, abusive overdraft fees and unfair rate increases.

Stay current on career opportunities in the ever-changing risk and compliance world by visiting GlobalRiskJobs and GlobalComplianceJobs.

The Securities Act of '09?

At GlobalRiskJobs we focus on professionals in the risk management and regulatory compliance communities. For quite awhile we have been anticipating that more intense regulation and reporting (and hence more demand for such professionals) would be the ultimate payback for all of the government money that has been used to stabilize the financial system. Well, since the Obama administration took office two weeks ago, it has been hard to miss the drumbeat of regulation and government oversight that has been getting louder. Alison Fitzgerald and Alison Vekshin of Bloomberg News have written a piece that consolidates that belief in a huge revision of securities laws. The authors anticipate the biggest overhaul of financial regulation since Roosevelt created the FDIC and the SEC in the 1930s. Pres. Obama is, in fact, discussing reregulation this week with congressional leaders, and topics include controls on unregulated hedge funds, new rules for executive pay and restricting naked credit default swaps. NYU-Stern professor Robert Engle suggests that this is a "major moment", a situation so unique that it offers the ability to make a huge impact. And Sen. Chris Dodd, Chairman of the Senate Banking Committee went on record yesterday as saying Congress will consider creating regulators to enforce consumer protections and monitor systemic risk as lawmakers rewrite the rules on Wall Street. In the House, Financial Services Chairman Barney Frank said he planned to start the overhaul with legislation that makes the Federal Reserve the systemic-risk regulator. And former Fed Chairman and current presidential advisor Paul Volcker said hedge funds and private equity firms should be required to register with the SEC to increase transparency. So it appears that public opinion has swung so far as to put EVERYTHING on the table. We've said it before but it bears repeating. New regulation means consulting jobs as companies seek help figuring out what it all means, and more new jobs when those consultants leave and the companies need people to keep up with those requirements.

A tour of the headlines today:

• Bernard Madoff rejected a fund's demand for an outside audit, saying his fund's strategy was so secret only his brother could do that. Linda Sandler reports.
• More color on the U.S. government pressure on BofA to complete the Merrill acquisition in the Wall Street Journal.
• A.I.G.'s securities lending business was also a key contributor to its demise, according to the WSJ.
• A WSJ editorial says that lost in the executive pay hoopla is a dangerous toxic asset guarantee debate.
• The SEC took a beating on Capitol Hill yesterday at the Madoff Hearing.
• The head of risk management at a hedge fund seems to have fallen down on the job.
• A 45% decline in syndicated loans in Europe is leading companies to pay higher fees to lock in bank loans years before they expire.
• The FT reports on details of Deutsche Bank's 4Q trading hit.
• A good story on being George Soros by Chrystia Freeland of FT.