WASHINGTON - Former Federal Reserve Chairman Paul Volcker, who is also an advisor to President Obama, Thursday said that the Fed should play the leading supervisory role in any new financial regulatory system.
In testimony to the House Financial Services Committee, Volcker said that as Congress considers a new regulatory structure, the Fed should play a "special role."
The Fed, he said, has the "independence from political pressures, the prestige and the essential qualifications of experience to serve as overseer of the financial system."
Volcker reacted coolly to the idea of a council of regulators to oversee the financial system, with Treasury in the primary role.
"I write with some confidence that a council of variegated agencies with their own particular challenges, policies, and constituencies cannot be expected to efficiently and effectively serve as a coordinating body," he said.
"I believe the needed oversight and coordinating role should be in the hands of the Federal Reserve rather than Treasury," he added.
Volcker said he opposed the idea of limiting the Fed's responsibilities just to monetary policy, stripping it of its regulatory role.
"Enforcing a separation of monetary policy and supervisory policy would not serve either function well," he said.
"The Federal Reserve Board should not become an academic seminar debating in its marble palace various approaches toward monetary policy without the leavening experience of direct contact with, and responsibility for, the world of finance and the institutions through which monetary policy is effected," Volcker said.
The former Fed chief said he would welcome the reaffirmation of the principle of separating banking from commerce.
Volcker said the various rescue plans that were implemented over the past year have left an "indeliable mark" on the financial system, with many wondering if the government will allow major institutions to fail.
This has led to "an unintended and unanticipated extension of the official 'safety net,'" he said.
In his opening comments at the hearing, House Financial Services Committee Chairman Barney Frank said the challenge of dealing with the "too big to fail" doctrine must be confronted.
"There does not appear to be a single, simple solution to it," he said.
But Congress, Frank said, must consider "what combination of measures can be taken to get rid of the doctrine of 'too big to fail.'"
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