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Bernanke: Stress tests will boost regulation

In a speech at a Chicago conference, Fed chairman says increasing supervision is a top priority for the central bank.

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WASHINGTON (Reuters) -- Lessons from government "stress tests" of the 19 largest U.S. banks could provide a guide to improvements in financial supervision and regulation, Federal Reserve Chairman Ben Bernanke said Thursday.

Increasing the effectiveness of bank supervision is a "top priority" for the Fed, and paying more attention to problems that could shake the entire financial system will enhance stability in the future, Bernanke said, speaking by satellite link to a conference organized by the Chicago Federal Reserve Bank.

"Our regulatory system must include the capacity to monitor, assess, and, if necessary, address potential systemic risks within the financial system," Bernanke said.

Bernanke, who spoke on the condition of the economy to Congress on Tuesday, did not address the outlook for the economy or monetary policy in his speech on Thursday.

The Fed, the Treasury Department and other bank regulators are due to release the stress test results at 5 p.m. ET, including which banks are being required to add capital to buffer against a potential sharp downturn in the economy.

Bernanke said portions of banking law stand in the way of effective supervision and called on Congress to revise them. He cited differences among supervisory models for banking, insurance and securities firms as an example.

"We hope that the Congress will consider revising the provisions of Gramm-Leach-Bliley to help ensure that consolidated supervisors have the necessary tools and authorities to monitor and address safety and soundness concerns in all parts of an organization," he said.

Gramm-Leach-Bliley, enacted in 1999, substantially overhauled U.S. banking laws to allow consolidation of banks and financial service firms, including insurance and securities companies. To top of page

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