The fiscal crisis and the events that caused it show weakness in public sector oversight of the financial system, according to Federal Reserve Board chairman Ben S. Bernanke.
“The events of the past two years have revealed weaknesses in both private-sector risk management and in the public sector’s oversight of the financial system,” Bernanke said at the Federal Reserve Bank of Chicago Conference on Bank Structure and Competition yesterday, according to prepared text of his speech released by the Fed.
“It is imperative that we apply the lessons of this experience to strengthen our regulatory system, both at the level of its overall architecture and in its daily execution,” he said. “Indeed, although reform of the current system is necessary, much can be done within the current framework. The Federal Reserve has engaged in extensive introspection and review of the lessons of the crisis and is working diligently to implement what has been learned. As the past two years have brought home to everyone, the development of a more stable and sound financial system should be of the highest priority.”
The Fed has evaluated the crisis and is “actively incorporating what we have learned into daily supervisory practice,” Bernanke said. “Increasing the effectiveness of supervision must be a top priority for our institution.”