Federal Reserve Chairman Ben Bernanke says regulators are moving to complete rules on how they would handle banks they deem to pose a threat to the financial system, in an effort to prevent another crisis.
Federal regulators expect to finalize some of the rules this summer, Bernanke says in testimony prepared for a Senate Banking Committee hearing Thursday, the law's first anniversary. Among other changes, the law empowers regulators to dismantle a bank or other financial firm and sell off the pieces if they determine that it poses a threat to the system.
The aim is to avoid the kinds of "too-big-to-fail" bailouts of financial institutions that cost taxpayers hundreds of billions of dollars in the crisis that struck in 2008.
Ending "too-big-to-fail" requires allowing a big, interconnected financial firm to fail "if it cannot meet its obligations _ and to do so without inflicting serious damage on the broader financial system," Bernanke says in the testimony.
He also said that the Financial Stability Oversight Council, the powerful body of regulators established by the overhaul law, is closely monitoring the financial system for potential threats. The oversight council includes Bernanke, Treasury Secretary Timothy Geithner and other top regulators.
The overhaul law was enacted in response to the financial crisis. In addition to giving the government new powers to break up financial firms that threaten the economy, it also established safeguards for consumers and investors, and imposed restraints on financial markets that have escaped regulatory oversight.
Deputy Treasury Secretary Neal Wolin, Securities and Exchange Commission Chairman Mary Schapiro and other officials also are scheduled to testify at Thursday's hearing.