Federal Reserve Chairman Ben Bernanke presented a series of potential reformations to the U.S. regulatory system yesterday, including changes to mark-to-market accounting and the possible implementation of an independent risk regulator, according to the Washington Post. In a speech before the Council on Foreign Relations, Bernanke called for an expansion of the regulatory agenda for the nation’s financial authorities on a number of fronts.
A major component of Bernanke’s speech was one that many economists and government officials have addressed in the past: the need for a federal risk regulator that would oversee the operations at firms considered “too big to fail.”
“[The recession] has revealed some rather shocking gaps in our regulatory oversight,” said Bernanke. “Who was overseeing the subprime lenders?…Who was overseeing AIG? There simply wasn’t enough adequate oversight in those cases.”
Bernanke also weighed in on the debate surrounding “fair-value” accounting standards, the “as is” asset valuation method that some blame for the massive write downs that have led to global losses. Bernanke rejected the elimination of fair-value, but conceded that certain assets would benefit from a more lenient accounting code.
Fair value, or “mark-to-market” accounting has come under fire from other government officials. “The mark-to-market rule has clearly got to be made better in its workings. There has to be more flexibility in its application,” said Chairman of the House Financial Committee Barney Frank. “There has to be discretion in what the consequences are.”