WASHINGTON - The nation's top economic officials urged Congress on Thursday to give them new regulatory tools to better protect the country from economic and financial havoc if a major Wall Street firm were to fail.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson made the recommendations in a joint appearance before the House Financial Services Committee as fresh worries gripped investors about the financial shape of mortgage giants Fannie Mae and Freddie Mac as well as investment bank Lehman Brothers Holdings Inc.
The men endorsed the creation of new procedures by which the government can guide an orderly liquidation of a failing investment bank in an effort to minimize any fallout that might be inflicted on the broader financial system and the economy. Such procedures, in place for commercial banks, might have made the dissolution of investment firm Bear Stearns more orderly.
Although Bernanke defended the Fed's controversial decision to financially back J.P. Morgan Chase's takeover of Bear Stearns, the Fed chief said, "This is not something I want to do again" were other investment firms to falter.
Given a crush of other business, Congress is unlikely to give financial regulators new powers this year. The matter will be for the next president and Congress.
Committee chairman Barney Frank, D-Mass., suggested it was more important for Congress to "do it right" rather than act quickly on substantial legislative changes. Bernanke and Paulson agreed.
"Realistically, it is going to be difficult to get things done this year," Paulson said.
Still, new powers could help insulate the financial system -- U.S. taxpayers -- from getting walloped if a big financial company were to collapse, Bernanke and Paulson said.
