CHICAGO — Federal Reserve Chairman Ben Bernanke Friday said the Fed is carefully monitoring asset classes to identify the possible formation of bubbles, but added it was "hubristic" to think asset deviations could always be spotted.
The Fed makes distinctions between financial triggers and vulnerabilities, Bernanke said, but its goal is to ensure the financial system is "sufficiently robust."
"Our hope is that if there is a problem, it won't be amplified," the Fed chairman said, adding that "we must make sure" the largest financial firms are strong and stable.
Bernanke made the remarks in response to audience questions following a speech at the annual Bank Structure and Competition Conference sponsored by the Federal Reserve Bank of Chicago.
There are a range of funding activities that need attention, Bernanke said, citing the repo market as one among several where "a lot of work is being done."
In addition, he said regulators will not have completed financial reform until they addressed the problem of 'too-big-to-fail' banks. It's important for long-term stability to eliminate too-big-to-fail, Bernanke said.
He added that the Dodd-Frank Act and Basel III accord on capital standards and liquidity requirements both have made important steps on the too-big-to-fail issue.
The Fed already has a number of tools that will be applied to the largest banks, Bernanke said. He added that one approach may be to require those banks to hold more and higher quality of capital.
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