The Federal Reserve should retain its supervisory role over large, complex financial institutions because it has an expertise that gives it an edge, Federal Reserve Board chairman Ben S. Bernanke told Congress yesterday.

“Even as the Federal Reserve’s central banking functions enhance its supervisory expertise, its involvement in supervising banks of all sizes across the country significantly improves the Federal Reserve’s ability to effectively carry out its central-bank responsibilities,” he told the House Committee on Financial Services, according to prepared testimony released by the Fed.

That supervisory role also helps the central bank in managing monetary policy and the discount window, Bernanke testified.

The Federal Reserve learns “about conditions and prospects across the full range of financial institutions, not just the very largest, and provides useful information about the economy and financial conditions throughout the nation,” Bernanke said.

He said the Fed backs financial regulation reform efforts now before Congress, and “has been conducting an intensive self-examination of our regulatory and supervisory performance and has been actively implementing improvements.”

The improvements include changes to the Fed’s supervisory framework, taking “a more explicitly multidisciplinary approach,” and expanded “use of horizontal reviews that look across a group of firms to identify common sources of risks and best practices for managing those risks,” Bernanke said.

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