U.S. Federal Reserve Chairman Ben Bernanke said on Friday regulators are considering a capital surcharge on large banks as one way to reduce the risk any one firm's problems could destabilize the financial system.
In his most detailed description of the U.S. central bank's new approach to regulation in the aftermath of the financial crisis, Bernanke said regulators in the United States and abroad are also considering requiring that a greater share of bank capital be held in the form of common equity.
Some firms might also be required to issue contingent capital, a debt-like security that can convert to equity in times of stress, he told a conference sponsored by the Boston Federal Reserve Bank.
Additional steps are necessary to hold adequate capital, Bernanke said.
To beef up oversight, which he acknowledged fell short in spotting risky practices that contributed to the meltdown, Bernanke said the central bank would conduct more comprehensive reviews of banks and demand more reporting.
The Fed's examination of capital buffers at the nation's 19 largest banks earlier this year helped restore confidence in the financial system and made it easier for banks to raise private capital.
We will conduct more frequent, broader, and more comprehensive horizontal examinations, Bernanke said. U.S. regulators traditionally have conducted examinations bank-by-bank, but the Fed's horizontal reviews will look at a wide swath of institutions simultaneously using similar criteria.
The White House and Congress are debating regulatory reforms aimed at avoiding a repeat of the crisis that helped push the U.S. economy into its deepest recession since the 1930s. Wrangling over details is likely to push back completion of the effort into next year, though President Barack Obama had wanted reforms enacted by year-end.
Bernanke repeated the Fed's backing for a council to oversee broad risks to the financial system.
However, he said the Fed has already begun to take a broader view in its supervision of banking organizations.
(Reporting by Kristina Cooke and Ros Krasny; writing by Mark Felsenthal; Editing by Chizu Nomiyama)