NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said Thursday the central bank is working to increase oversight of financial institutions, even as Congress debates a package of Wall Street reforms.
In a speech at the Federal Reserve Bank of Chicago, Bernanke said he "supports" ongoing efforts in Congress to reform financial regulation. But he added that the Fed is already taking steps to tighten up oversight of the banking system.
"While these legislative steps are necessary, we are not waiting to implement improvements that can be accomplished within our existing authority," he said.
"Now we are working with banks to ensure they improve their risk-measurement and risk management as well as strengthen their liquidity and capital levels while also providing the credit that households and businesses need," the Fed chairman added.
Bernanke said any reform package should give regulators the power to break up financial institutions that could threaten the economy if they fail.
The Senate took a major step towards achieving that goal Wednesday in approving a bipartisan deal to unwind big financial firms that are considered too big to fail. But lawmakers are still debating a number of other proposals, including new rules for the derivatives market and new consumer protections.
In the meantime, Bernanke said the Fed is working with regulators around the world to toughen up capital and liquidity rules for banks. The goal is to ensure that banks have sufficient money in reserve as a bulwark against future crises.
Bernanke said the central bank has taken "significant steps" to ensure that banks do not structure compensation agreements that encourage employees to take excessive risks to maximize pay.
In addition, the Fed is working with other government regulators and investors to strengthen the infrastructure of key financial markets, he said. Among them are the market for securities repurchase agreements, or "repos," and over-the-counter derivatives.
The Fed has also enhanced its data collection process as part of a renewed focus on "systemic surveillance," he said. The aim is to better gauge how exposed large banks are to certain risks and how vulnerable they are to a potential shock.
Bernanke also said the bank stress tests, completed nearly one year ago, helped stabilize the financial system and revive the economy.
The Fed and other bank regulators launched the Supervisory Capital Assessment Program, also called the bank stress test, beginning in February 2009. The goal was to assess the health of 19 major U.S. financial institutions in the wake of the financial crisis of 2008 and determine how best to stabilize the system.
The program, Bernanke said, "helped restore confidence in the banking system and broader financial system, thereby contributing to the economy's recovery."
But he said banks need to conduct their own stress tests to ensure that risk managers take into consideration all outcomes, even unlikely ones.
Many bankers have argued that the severe downturn in the housing market, which precipitated the financial crisis, could not have been foreseen.
Walmart, Target and Kroger's profit is taking a hit as they fight to reach shoppers online. More
Get ready for sticker shock at the gas station if you're one of the estimated 41.5 million Americans hitting the roads this Memorial Day weekend. More
It's normal for car prices to rise with options. But the Model 3's price reaches much farther than most. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
It mostly boils down to confusion, commissions, and fees. More