WASHINGTON --- Federal Reserve Chairman Ben Bernanke made a fresh pitch Saturday to retain oversight of small banks, contending that what the Fed learns from that role helps it assess the overall health of the U.S. financial system.
Bernanke, in a speech to the Independent Community Bankers of America's meeting in Orlando, Fla., argued against a Senate proposal that would scale back the Fed's banking duties.
Close connections with community banks give the Fed a better understanding of the nation's financial risks, including problems in commercial real-estate and small-business lending, according to Bernanke's prepared remarks.
A Senate bill to overhaul financial regulation 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 overseeing only 35 big bank holding companies. The legislation, written by Sen. Christopher Dodd, D-Conn., is set to be debated Monday by the Senate Banking, Housing and Urban Affairs Committee, which he leads.
Critics have blamed lax regulation at the Fed and other agencies for contributing to the financial crisis. Small banks have expressed support for continued regulation by the Fed and have made arguments similar to Bernanke's.
Dodd's proposal would mean major changes to Fed's system of 12 regional banks. For example, Fed banks in Kansas City, Mo., and St. Louis no longer would have banks under their supervision.
Dodd, pushing back at Bernanke's argument, has noted that former Fed officials and others who have testified before his committee have made the opposite point -- that bank supervision and monetary policy are not related.
Dodd's staff pointed to testimony from a former Fed vice chairman, Alice Rivlin, and a former Fed director of monetary affairs, Vincent Reinhart.
"I didn't really experience that we learned a lot from the supervising particular banking institutions that was useful to monetary policy," Rivlin told the committee in July.
The Obama administration has supported a broader supervisory role for the Fed.
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