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Banks need to top up, says Fed chief Ben Bernanke

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Fed chief Ben Bernanke. Photo: Reuters

Fed chief Ben Bernanke. Photo: Reuters

Fed chief Ben Bernanke. Photo: Reuters

US Federal Reserve chairman Ben Bernanke has said banks need to have more capital at hand in order to ensure the financial system is stable.

Mr Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers, even if they allow for a long period of implementation to prevent any market disruptions.

"We need to have higher capital, and that's what Basel III does," he said in response to questions at an Atlanta Fed conference, referring to the latest international effort to tighten bank oversight. "That's essential for a stable financial system."

Mr Bernanke made the comments the same day that an international bank lobby group, the Institute of International Finance (IIF), urged policymakers to pause in regulating the industry.

Toughened capital standards, new liquidity requirements and rules that limit activities all restrict banks' ability to provide businesses and households with the credit needed to lift economic growth, the IIF said in a letter to central bankers and finance ministers.

Whether big banks have sufficient levels of capital to protect against possible losses has been an ongoing source of contention. A call by the head of the International Monetary Fund, Christine Lagarde, last year for European banks to raise up to €200bn in new capital was quickly rejected by European politicians.

In his remarks, Mr Bernanke said the US economy has yet to fully recover from the effects of the financial crisis, and regulators must continue to find new ways to strengthen banks.

"The heavy human and economic costs of the crisis underscore the importance of taking all necessary steps to avoid a repeat of the events of the past few years," Mr Bernanke said.

He focused on the blind spots for financial authorities trying to prevent a repeat of the 2008-2009 meltdown.

He said financial stability matters had historically played second fiddle to monetary policy issues in the list of central bank priorities, but the crisis changed that.

"Financial stability policy ... is now generally considered to stand on an equal footing with monetary policy as a critical responsibility of central banks," he said.

Irish Independent