Bernanke: Regulators must prevent a future crisis
WASHINGTON (AP) - April 10, 2008 "We do not have the luxury of waiting for markets to stabilize
before we think about the future," Bernanke said Thursday in a
speech in Richmond.
Last month Bernanke, Treasury Secretary Henry Paulson and other
top economic policymakers called for stricter regulation of
mortgage lenders as part of a broad effort to prevent a repeat of
the credit and financial problems that have damaged the economy.
The recommendations from the presidential advisory group on
financial markets cover mortgage lenders and other institutions as
well as investors, credit ratings agencies and regulators.
Federal and state regulators should strengthen oversight of
mortgage lenders, the presidential group proposed last month. Also,
states should follow strong, uniform licensing standards for
mortgage brokers. Legislation in Congress would create a nationwide
licensing system.
Those recommendations were put forward after spreading problems
in the housing and credit markets threatened to paralyze the entire
financial system, which could be devastating to the national
economy.
"Many of the necessary changes that have been identified,
including increasing transparency, improving risk management and
attaining better coordination among regulators could provide
important support to the process of normalizing our financial
markets," Bernanke said.
Bernanke said the recommendations from the presidential advisory
group if implemented would guard against future financial troubles.
"These recommendations should moderate the likelihood and
severity of future financial shocks and enable market participants
to better withstand shocks when they occur."
In a separate effort last month, the Bush administration
unveiled a sweeping plan that would revamp a financial regulatory
system dating back to the Civil War to better deal with 21st
century challenges.
Under the plan, the Fed created in 1913 after a series of bank
panics, would become an uber cop - overseeing the stability of the
entire financial system including commercial banks, investment
banks, insurance companies, hedge funds, private-equity firms and
others. At the same time, the Fed would lose daily supervision of
big banks.
Bernanke, in his speech, didn't get into a discussion about the
changes to the Fed's role under this proposal. However, the Fed
chief has said in the past that it is important for the Fed to
retain oversight of banks.
The Fed chief also didn't talk about the state of the economy or
provide clues about the Fed's next move on interest rates.
Many economist believe the Fed will lower rates again when they
meet later this month, especially given a recent report showing
that employers have slashed jobs for three months in a row.
Better consumer protections and disclosures also would help
prevent a repeat of current mortgage and credit problems, Bernanke
said.
The Fed has proposed rules to protect home buyers from dubious
lending practices. The plan would crack down on a range of shady
lending practices that has burned many of the nation's riskiest
"subprime" borrowers - those with spotty credit or low incomes -
who have been hardest hit by the housing and credit debacles. The
rules also would curtail misleading ads for many types of mortgages
and bolster financial disclosures to borrowers.