Bank Stress Tests Should Give Market Confidence: Bernanke

Results of government stress tests of 19 top U.S. banks should allow markets to have greater confidence in the condition of the banks, Federal Reserve Chairman Ben Bernanke said Thursday.

Responding to questions at a conference organized by the Chicago Federal Reserve Bank, Bernanke said he was pleased with the results of the stress tests and described the process as a fair and comprehensive effort.

J. Scott Applewhite / AP

Lessons from the stress tests also could provide a guide to improvements in financial supervision and regulation, Federal Reserve Chairman Ben Bernanke said Bernanke, speaking by satellite link to a conference organized by the Chicago Federal Reserve Bank.

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, "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 at 5 p.m. the stress test results, including which banks are being required to add capital to buffer against a potential sharp downturn in the economy.

If they don't, banks will have 30 days to come up with plans to remedy the situation and then have six months to implement them.

Bernanke earlier this week said he was hopeful banks could raise capital on their own, rather than having to rely on the government for aid.

Regardless, no bank will be allowed to fail, Fed officials have said.

Getting banks in a better position to lend more freely again is prerequisite to turning around the economy.

The stress tests were "comprehensive, rigorous, forward looking and highly collaborative among the supervisory agencies," Bernanke said, noting that 150 examiners, supervisors and economists took part.

"Undoubtedly, we can use many aspects of the exercise to improve our supervisory processes in the future."

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.

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