WASHINGTON -- The Federal Reserve has broadened its oversight beyond banks and now monitors a wide-range of financial institutions that could hasten another financial crisis, Chairman Ben Bernanke said Friday.
Bernanke said the Fed is still monitoring banks and other systematically important financial institutions. But it has widened its scope to include other important participants that could either trigger a crisis or make the system more vulnerable.
Chief among them is the so-called shadow banking system, which includes loans that are turned into securities and sold to investors. It was the breakdown of lending in the area of sub-prime mortgages that helped trigger the 2008 crisis.
In a speech to a banking conference sponsored by the Federal Reserve Bank of Chicago, Bernanke said the Fed is also looking more closely at asset markets and the nonfinancial sector, which includes consumers and businesses.
"Probably our best defense against complacency during extended periods of calm is careful monitoring for signs of emerging vulnerabilities," Bernanke said.
The 2008 financial crisis helped push the country into the worst recession since the 1930s. Bernanke said the country is still suffering from the effects of the crisis and economic downturn.
"Our economy has not yet fully regained the jobs lost in the recession that accompanied the financial near collapse," Bernanke said. "And our financial system -- despite significant healing over the past four years -- continues to struggle with the economic, legal and reputational consequences of the events of 2007 to 2009."
In 2010, Congress passed a sweeping overhaul of financial regulation that President Barack Obama signed into law. But opponents of the law, including many of the nation's biggest banks, have mounted an aggressive effort to overturn key provisions that target some of the most influential institutions.
The regulatory overhaul adopted tougher requirements for these institutions that are considered "too big to fail." Their collapse could put the entire financial system at risk. Many of the rules are still being finalized.
For example, banks are being asked to hold larger amounts of capital to cushion against risk. And regulators could seize a company that is threatening the system, dismantle it and sell off the pieces.
Asked about these efforts Friday, Bernanke said that the Fed and other banking regulators were working hard to put in place the regulations needed to implement the too-big-to-fail provisions.
"Too big to fail is partly a credibility issue on the part of the government," Bernanke said. "Will the markets believe the government will go through with its commitment to wind down an institution?"
Bernanke said that if the regulatory overhaul hasn't adequately addressed this issue, regulators may need to increase the capital requirements further for banks. He said that could be preferable to "arbitrarily saying banks can be no larger than a certain size."
Bernanke was also asked about regulators' ability to detect asset bubbles, such as the surge in home prices that contributed to the financial crisis. Bernanke said that's difficult to do. He suggested strengthening the broader financial system so that it isn't as vulnerable to such triggers.
Associated Press reporter Don Babwin in Chicago contributed to this report.