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Federal Reserve chairman Ben Bernanke called for his central bank to keep broad regulatory powers Wednesday, amid a fierce debate about how to police Wall Street.
Bernanke told a US congressional committee that the Fed was best-placed to monitor much of the massive banking sector, as sweeping reforms -- backed by President Barack Obama -- targeted the Fed's role.
"Because of its wide range of expertise, the Federal Reserve is uniquely suited to supervise large, complex financial organizations," Bernanke said in testimony.
The Fed has been accused of failing to spot risks poised by exotic financial products that propelled the economic crisis, and is coming under pressure to cede power.
But Bernanke insisted the Fed was best-placed to see "risks to the stability of the financial system as a whole," and needed to continue to oversee small banks in order to keep its focus on both Main Street and Wall Street.
Earlier this week, Senate Banking Committee chairman Christopher Dodd outlined White House-backed plans to toughen regulation of the massive US financial sector, which has been blamed for dragging the global economy to the edge of collapse.
The measures, if adopted, would limit the Fed's oversight to banks worth more than 50 billion dollars in assets and strip away its role in supervising state-chartered banks.
It could see the Fed's purview reduced from around 6,000 banks today to as few as 40 banks under the new rules.
Bernanke warned that move could skew the Fed's view of the economy toward mega-banks, limiting its effectiveness in setting interest rates which reflect the economy as a whole.
"The Federal Reserve's participation in the oversight of banks of all sizes significantly improves its ability to carry out its central banking functions, including making monetary policy," he said.
Dodd's proposals would also create a Financial Stability Oversight Council to monitor systemic risk, potential encroaching on the Fed's turf.
Chaired by the treasury secretary, the council would have "the sole job to identify and respond to emerging risks," according to Dodd.
While the Fed would retain much of the responsibility of risk analysis under the plans, the new committee would be able to demand it investigate non-bank financial firms, such as insurance or credit card companies and would rubber stamp other decisions.
But Bernanke argued the Fed's expertise in monetary policy made it ideally suited to monitor risk.
"Federal Reserve staff members have expertise in macroeconomic forecasting for the making of monetary policy, which is important for helping to identify economic risks to institutions and markets," he said.
Top Democrats, as well as consumer groups have sharply criticized proposals that would not see the Fed's rule curtailed, arguing it is already too close to Wall Street and as a watchdog it failed to bark during the crisis.
Bernanke defense was backed up by Paul Volcker, one of his predecessors at as Fed chairman, who also appeared before the committee.
"There is no other official institution that has the breadth of institutional knowledge, the expertise, and the experience to identify market and institutional vulnerabilities," Volcker said.
The current Federal Reserve boss was also grilled by lawmakers over growing evidence that China -- the largest US creditor -- was slowly pulling away from buying US debt.
While not addressing the issue of Chinese appetite for US Treasury bonds directly, Bernanke said he had not seen "any reduction in demand for US Treasuries, the foreign demand remains quite strong."
Fears of a sell-off were prompted when the Treasury Department last week reported China held 894.8 billion dollars in treasury securities at the end of December, down from 929.0 billion dollars in November.
