CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt Mr. Volcker , '' I appreciate your invitation to address important questions concerning the link between monetary policy and Federal Reserve responsibilities for the supervision and regulation of financial institutions . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt The Federal Reserve , after all , is the only agency that has financial resources at hand in amounts capable of emergency response . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt As implied by my earlier comments , the Federal Reserve , by the nature of its core responsibilities , is thrust into direct operational contact with financial institutions and markets . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt For reasons that I discussed earlier , I do believe it would be a really grievous mistake to insulate the Federal Reserve from direct supervision of systemically important financial institutions . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt Before addressing the specific questions you have posed , I would like to make clear my long-held view , a view developed and sustained by years of experience in the Treasury , the Federal Reserve , and in private finance . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt The practical fact is the Federal Reserve must be involved in those judgments and that decision-making , beyond this broad responsibility for monetary policy and its influence on interest rates . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt Beyond those contacts , the 12 Federal Reserve banks exercising supervisory responsibilities provide a window into both banking developments and economic tendencies in all regions of the country . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt Undeniably , in hindsight , there were weaknesses and gaps in the supervision of well-established financial institutions , including banking institutions , major parts of which the Federal Reserve carries direct responsibility . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--13.txt How can those judgments and responses be coordinated and implemented in real time in the midst of crisis in a matter of days ? CongressionalHearings/Dodd-Frank/CHRG-111shrg57923/CHRG-111shrg57923--39.txt But what I did n't see and could n't see and could n't understand was how what was happening in the housing sector was going to lead to the collapse in the financial sector . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--113.txt I would specifically like to comment on the Federal Reserve 's interest rate setting body , the Federal Open Market Committee , which met yesterday . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--113.txt Would reducing the number of institutions supervised by the Federal Reserve have an impact on the FOMC 's activities ? CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--113.txt It is comprised of Federal Reserve Governors , the President of the New York Fed , and on a rotating basis , the presidents of five of the 11 regional Reserve Banks . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Interest rates fixed by the Federal Reserve is price fixing , and it should have no part of a free market economy . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt The Federal Reserve currently has extensive authority to regulate and supervise bank holding companies and State banks that are members of the Federal Reserve System , and foreign branches of member banks , among others . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Proponents of preserving robust Fed supervision authority cite three main points to support their position that the Fed should retain broad supervisory powers . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Under Senator Dodd 's proposal , the Fed would supervise 40 or 50 large banks , and the other 7,500 or so banks would be under the regulatory purview of other Federal and State banking agencies . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Third , proponents say that the Fed 's supervisory activities provide the Fed information about the current state of the economy and the financial system that influences the FOMC in its execution of monetary policy , including interest rate setting . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Once the change of attitude comes , when that inflated money supply decides to go into the market and prices are going up , once again the Fed will have difficulty handling that . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--3.txt Last year , the House passed our financial services reform legislation that substantially preserved the Fed 's power to supervise these financial institutions . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt The Federal Reserve has developed such expertise in its long experience supervising banks of all sizes , including community banks and regional banks . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt The legislation passed by the House last December would preserve the supervisory authority that the Federal Reserve needs to carry out its central banking functions effectively . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt The Federal Reserve strongly supports ongoing efforts in the Congress to reform financial regulation and to close existing gaps in the regulatory framework . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt Mr. Bernanke , '' The Federal Reserve 's involvement in regulation and supervision confers two broad sets of benefits to the country . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt The Federal Reserve making of monetary policy and its management of the discount window also benefit from its supervisory experience . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt For example , Federal Reserve staff members have expertise in macroeconomic forecasting for the making of monetary policy , which is important for helping to identify economic risks to institutions and to markets . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt Supervisory concerns will be communicated to firms promptly and at a high level , with more frequent involvement of senior bank managers and boards of directors and senior Federal Reserve officials . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--10.txt In the course of carrying out its central banking duties , the Federal Reserve has developed extensive knowledge and experience in each of these areas critical for effective consolidated supervision . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--56.txt Mr. Bernanke , '' Certainly , one possibility which my colleagues to the left know a lot about is that if you keep rates too low for too long , you get inflation . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--241.txt And more -- and secondly , in respect to the subject of this hearing , would countercyclical underwriting requirements be easier to implement in the context of consolidated Fed supervision ? '' CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--206.txt I think , really , that the Federal Reserve is in a better position to get a balanced regulatory position , regulatory approach , simply because they are responsible for monetary policy and responsible for business activity , too . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--271.txt On the 11th of December , your committee passed a reform bill that would preserve the Federal Reserve 's role as a supervisor of financial institutions . CongressionalHearings/Dodd-Frank/CHRG-111hhrg56776/CHRG-111hhrg56776--271.txt While we think that it is sensible that the Fed retains meaningful supervisory authority in that bill , we also believe the Fed and the U.S. financial system would benefit from the Fed also having a supervisory dialogue with small and medium-sized institutions , a point which is well articulated by Jeff Gerhart in his testimony .