Bank supervision and consumer protection should not be separated, Federal Reserve Chairman Ben Bernanke said in a letter to a U.S. lawmaker obtained by Reuters on Wednesday regarding the Obama administration's proposal to create a Consumer Financial Protection Agency.
We believe that prudential supervision and consumer compliance supervision are complementary and should not be separated, Bernanke wrote to Republican Representative Spencer Bachus in the letter dated July 28.
Bernanke's statement was one of the clearest signals so far of the Fed's position on the administration's proposal to strip the central bank and other bank regulators of consumer protection duties and centralize them in a new agency.
A stand-alone consumer protection agency is a centerpiece of Obama's redesign of government financial supervision after the financial meltdown. Such an agency would prevent the kinds of risky lending that many analysts believe pushed borrowers into loans they could not repay and contributed to the crisis, the administration says.
However, the Fed has been ambivalent about letting go of consumer protection functions, despite criticism that its light regulatory touch failed to halt harmful practices.
The Federal Reserve has the resources, the structure and the experience to execute an ongoing comprehensive program for effective consumer protection in financial services, Fed Governor Elizabeth Duke told Congress in July.
In his letter, Bernanke acknowledged that an independent consumer protection agency might gain a single-minded focus on shielding users of financial products and might be more inclined to act to deter harmful practices than an agency with a range of responsibilities.
But he also said the Fed believes there are efficiency and information advantages to be gained from housing consumer protection responsibilities in a single agency.