The Fed evaluates new regulatory practices

More evidence the era of wholesale deregulation is waning.  Federal Reserve Board Chairman Ben Bernanke recently suggested oversight by the Fed needs to be more broadbased and evaluate whole systems rather than individual institutions.  The sign things were changing for the Fed was its recent role in organizing the sale of Bear Stearns and its involvement in opening lending facilities for other investment banks. 

Bernanke said a comprehensive approach could allow supervisors to raise concerns about industry-wide concentrations of certain types of assets or certain types of practices, such as underwriting unusual types of mortgages.

Similarly, system-wide supervision could take into account how rules affect institutions differently at flush economic times as well as at stressful times.

"The macroprudential supervisor would recognize that, for the system as a whole, excessively conservative lending policies could prove counterproductive if they contribute to a weaker economic and credit environment," Bernanke said.

And while risk concentrations might be acceptable at one institution in a growth period, they might be dangerous if they were widespread among many firms, he said. (Link)

Any overhaul of the Fed's regulatory responsibilities is not likely to come anytime in the next several months and, most likely, will be pushed off for the next president and Congress.