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Fed Chair Ben Bernanke called for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions.
The Associated Press reports Bernanke made a speech to “community” banks in Phoenix, Ariz. today.
Bernanke, who will appear before Congress on the AIG flap next week, didn’t mention any companies by name in his speech. He made a fresh pitch for an overhaul of banking regulations to prevent another financial crisis like the one gripping the U.S. and other countries worldwide.
Regulatory gaps need to be closed, he said. Regulators must make sure financial companies have a sufficient capital cushion against potential losses.
And Congress must enact legislation so that the failure of a huge financial institution can be handled in such a way to minimize fallout to the national economy — similar to how the Federal Deposit Insurance Corp. deals with bank failures. Such “too big to fail” companies must be subject to more rigorous supervision to prevent them from taking excessive risk, Bernanke said.