--E1-- Bernanke: A new super-currency would weaken the dollar WASHINGTON (MarketWatch) - Russia and China are advocating the creation of a new super currency, which Fed Chairman Ben Bernanke said Thursday would weaken the dollar if it were to be established. "It would weaken the dollar, and we would have to watch for any inflationary consequences of that," Bernanke said during the question and answer segment of a House Financial Services Committee hearing. "I don't see that as a risk as long as we as a country take efforts to manage our risk and keep inflation low." Bernanke added that the dollar is not at any immediate risk of losing its status as a reserve currency, however he acknowledged that if the U.S. doesn't put its "economic house in order," risk could eventually grow for the U.S. currency. The dollar index where people don't have to document their income to a lender_ would be an example of a risky product. Those loans were made during the housing boom and contributed to the bust. Bernanke insisted that his endorsement of a council to police risk isn't a shift in his stance. "There has been some misunderstanding ... we support a council ... we never objected to a council," he said. Both Democrats and Republicans have been loathe to give the Fed additional powers. They argue that the central bank failed to spot problems that led to the financial crisis in the first place. "We have had debate and will have further debate about exactly what the role of the Federal Reserve will be in the systemic risk regulation. There were some, myself included, who earlier this year thought the Federal Reserve would have a larger role than it looks like it will have," said committee chairman Barney Frank, D-Mass. --E2-- Bernanke: Could Use Monetary Policy Vs Bubbles, But Blunt Tool By Tom Barkley and Maya Jackson Randall Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--U.S. Federal Reserve Chairman Ben Bernanke said Thursday that he would be open to using monetary policy to prevent asset price bubbles, but that macroprudential regulation would likely be more effective. Bernanke told the House Financial Services Committee that monetary policy is a "very blunt tool" that could have a negative effect on the rest of the economy because you can't just target one sector. "Even though, as I say, I'm open-minded about the role of monetary policy in...affecting bubbles, I do think that the first line of defense needs to be a stronger regulatory system that would, on one hand, prevent the excessive buildup of risk in the first place," he said. Once a bubble does pop, it would be best to "make the system strong enough so that it wouldn't create such an economic crisis like we've seen recently," he added. --E3-- Bernanke's testimony on regulatory reform WASHINGTON (Reuters) - The following are highlights from a House Financial Services Committee hearing on Thursday on financial regulatory reform with Federal Reserve Chairman Ben Bernanke. BERNANKE ON UNEMPLOYMENT "We have to grow faster than the underlying potential in order to make a dent in the unemployment rate. It depends on how quickly the economy grows... If it only grows at 3 percent, which is not much faster than the underlying potential growth rate, than unfortunately the unemployment rate would still probably be above 9 percent by the end of the year (2010.)" BERNANKE ON WHY TREASURY SHOULD HEAD SYSTEMIC RISK COUNCIL "Obviously because the Treasury has the broadest responsibility for the economy in general, has the broadest responsibility for any fiscal implications and financial implications and frankly because the Treasury would probably be better placed to mediate any differences among agencies that might arise for whatever reason." BERNANKE ON INFLATION "We are confident that we can manage our policies to support the economy without inducing inflation in the medium term. "We fully believe we have the tools and political will necessary to achieve that." BERNANKE ON INTERNATIONAL RESERVE CURRENCY "It would weaken the dollar and we would have to watch for any inflationary consequences... I want to reiterate that I don't see this as a near-term risk, so long as we as a country take the appropriate steps to manage our fiscal position..." BERNANKE ON EXECUTIVE COMPENSATION "The Federal Reserve is about to issue guidance for comment on executive compensation which will apply not only to the top 5 or 10 executives, but way down into organization, traders or anybody whose activities would affect the risk profile of the company. We view this as a safety and soundness issue. That is what we have heard from the institutions themselves. They believe that the incentive structure affects safety and soundness." BERNANKE ON RESOLUTION AUTHORITY "One of the big concerns about these large firms... As too big to fail firms they are not subject to the discipline of the market because lenders do not believe that this firm will be allowed to fail. That has to be eliminated and fixed... I would not be satisfied with any resolution authority that did not have a strong presumption and a strong mechanism for allowing these firms, when being taken over by the government, to impose significant losses on not only shareholders but also creditors." BERNANKE ON WHETHER HEDGE FUNDS WOULD BE DEEMED SYSTEMIC "My view at this point is that I would not think any hedge fund or private equity fund would become a systemically critical firm individually. However it would be important for the systemic risk council to pay attention to the industry as a whole and make sure they understand what was going on so there wouldn't be some kind of broad-based problem that might cut across a lot of firms." BERNANKE ON REFORM OF FANNIE MAE, FREDDIE MAC "I think in the near future we need to have a plan for Fannie and Freddie...I think the GSEs do need to be addressed in the near term, not just for systemic risk reasons, but because there's a lot of uncertainty in housing and what's going to happen to the housing structure, housing finance system. So I hope that in the very near future, I believe that's the intention, I hope in the very near future we'll have some proposals on that." BERNANKE ON COUNCIL OF REGULATORS "We have never supported, and the administration has never supported, a situation in which the Fed would be some kind of untrammeled super-regulator over the entire system. That has never been contemplated. The original administration proposal proposes a council and we support the council. We think it has a very valuable role to play." BERNANKE ON SUPERVISION, FROM PREPARED TEXT "For purposes of both effectiveness and accountability, the consolidated supervision of an individual firm, whether or not it is systemically important, is best vested with a single agency. However, the broader task of monitoring and addressing systemic risks that might arise from the interaction of different types of financial institutions and markets--both regulated and unregulated--may exceed the capacity of any individual supervisor. Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole. This objective can be accomplished by modifying the regulatory architecture in two important ways. "First, an oversight council--composed of representatives of the agencies and departments involved in the oversight of the financial sector--should be established to monitor and identify emerging systemic risks across the full range of financial institutions and markets... "Second, the Congress should support a reorientation of individual agency mandates to include not only the responsibility to oversee the individual firms or markets within each agency's scope of authority, but also the responsibility to try to identify and respond to the risks those entities may pose, either individually or through their interactions with other firms or markets, to the financial system more broadly." --E4-- Thomson Reuters US FED: Bernanke-All Regulators Should Participate In Financial Oversight 10.01.09, 10:18 AM EDT Washington, Oct 01 2009 (IFR) - Federal Reserve Chairman Ben Bernanke in prepared testimony today before the House Financial Services Committee discussed the need for an oversight council made up of all federal agencies involved in financial supervision. 'To further encourage a more comprehensive and holistic approach to financial oversight, all federal financial supervisors and regulators-- not just the Federal Reserve -- should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities,' Bernanke said. To fulfill its responsibility, this oversight council would need access to information from its member agencies on the institutions and markets they supervise. In cases when this information is not available, the council would have the authority to collect it directly from financial institutions and markets. Bernanke called on Congress to support a 'reorientation' of individual agency mandates so that the agencies would have the authority to oversee individual firms and markets and identify and respond to the risks they may pose. 'These actions could be taken by financial supervisors on their own initiative or based on a request or recommendation of the oversight council,' he said. --E5-- Bernanke backs away from regulation revamp Thu Oct 1, 2009 11:33am EDT By Kevin Drawbaugh WASHINGTON (Reuters) - The head of the Federal Reserve and a key U.S. lawmaker on Thursday backed away from a controversial provision of the Obama administration's financial regulation reform plan, saying new oversight by the Fed on "systemic risk" should be shared with other regulators. Fed Chairman Ben Bernanke told a congressional panel that a new council of financial regulators, not just the Fed, should monitor big-picture risks threatening the financial system. "There were some, myself included, who earlier this year thought that the Federal Reserve would have a larger role in this. Now it looks like it will be part of a conciliar structure," said House of Representatives Financial Services Committee Chairman Barney Frank at a hearing with Bernanke. The comments from Frank and the Fed chairman come amid growing skepticism in Congress about an administration proposal to give the Fed the lead role in policing the economy for systemic risk, albeit in coordination with an inter-agency council. The Fed is "well suited" to supervise major financial institutions whose failure could hurt the economy, Bernanke told Frank's committee. He also said all systemically important financial firms should answer to a consolidated regulator, whether or not the firms own banks. But an inter-agency council should be used to monitor the very broadest sorts of risk, he said, placing new emphasis on an idea embraced by increasingly vocal critics of the Fed. While the administration has backed the idea of creating an inter-agency council to work with the Fed, it has been firm on its determination to place the most power in the Fed. FED FAILURES CITED Some of the Fed's critics point to the failure of the Fed, along with other regulators, to spot the threat to the financial system posed by overexposure of banks and other firms to the housing market which eventually helped cause the credit crisis and push the world into a recession. World Bank President Robert Zoellick on Monday sounded a cautionary note about granting greater regulatory power to the Fed, saying there had been lapses by central banks in monitoring risks in the run-up to the crisis. Bernanke said it was a good idea for one single regulator to be responsible for supervising individual firms. "However, the broader task of monitoring and addressing systemic risks that might arise from the interaction of different types of financial institutions and markets -- both regulated and unregulated -- may exceed the capacity of any individual supervisor," he said. "Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole." The comments appeared to represent a change of tone by Bernanke. He told a congressional committee on July 24 that taking on formal responsibility for supervising the broad health of the financial system would be a natural outgrowth of the central bank's existing duties. SHIFT NOT SURPRISING A shift in emphasis by the Fed chairman would not be surprising, said Joe Engelhard, policy analyst at investment research firm Capital Alpha Partners in Washington. "There's been a lot of negative reaction, particularly by Republicans, on the House side. In the Senate, (banking committee) Chairman Christopher Dodd hasn't been too supportive either" of the administration's proposal, Engelhard said. Frank has been trying to find a new formulation that would give the council more power, but preserve a central Fed role. "It would be smart for the chairman of the Federal Reserve to take that approach, as well," Engelhard said. A key to the final outcome of the debate will be if the Fed gets clear power to intervene when systemic risk is detected. "Frank still wants the Fed to have all the authority it needs to address a future AIG or a future Lehman Brothers ... They're perfectly willing to beef up the oversight council because at the end of the day, as long as the Fed's got the authority, it can do what it has to do," he said. On another front, Bernanke said in his comments prepared for delivery on Thursday that a new "special resolution authority" should be created to allow the government to wind down a failing systemically important financial institution.