More and more observers are pointing in disgust to the fact so many big banks, among them disgraced agencies which helped create a lot of our economic troubles, are now prospering while people continue to lose jobs and face financial ruin.
Something is grievously wrong with this picture and it is important that Congress does not contribute to continuing the national misery. With that in mind, it is crucial to heed chairman Ben Bernanke’s request to let the Federal Reserve keep all its banking oversight powers to help the central bank guide our economy.
The U.S. Senate is now making efforts to scale back the Fed’s role in overseeing the nation’s banks. Laxity in controls for banking profligacy contributed to the mess we now have to dig out of. It is obvious that time and again there was a failure to use the available controls to rein in some of the outlandish economic activities that helped bring about this massive recession. Now that there is an awareness of the need to exercise proper controls to prevent new disasters, it would be foolish to weaken the instruments at hand.
Bernanke says that policymakers factor data they get from the Fed’s role as the bank regulator into their decisions on interest rates. He adds that banking policies give the Fed insights into the health of the entire banking system. And even though some major banks seem to be pulling out of trouble, many others are still hurting while jobless citizens are suffering along with them.
Saying he wants to overhaul the nation’s financial regulatory structure, Sen. Chris Dodd, D-Conn., Senate Banking Committee chairman, is offering legislation that would strip the Fed of its power to supervise state-chartered banks and bank holding companies with assets of less than $50 billion. That would leave the Fed supervising 35 of the biggest bank holding companies. It currently oversees about 5,000 bank holding companies, about 850 smaller banks that are both state-chartered and are members of the Federal Reserve System and some foreign banks operating in the United States.
Recent history indicates that there should have been far more oversight and intervention of the banking business as things deteriorated. Bernanke has said a number of times that the Fed “was wrong” in not cracking its whip much sooner in a number of instances. At this point, there is a need for more oversight rather than less to prevent new and harmful abuses.
For all its flaws and errors, the Federal Reserve’s oversight of banking policies and actions inspires more confidence than a politicized Congress with its long list of bad political performances, some of which played a major role in the billions of dollars lost in housing loans.