Reuters

FED FOCUS-Yellen signals new emphasis on Fed policing role

Reuters

* At hearing, Fed chair nominee talks tough on regulation

* Telling exchange with Warren on bigger role for governors

By Jonathan Spicer

NEW YORK, Nov 15 (Reuters) - Move over inflation and job

growth.

The next Federal Reserve chief appears set to direct the

central bank's might at ensuring financial stability and stern

banking oversight with the same vigor it currently applies to

its traditional mandates of fostering price stability and

maximum employment.

The question of monitoring and stabilizing Wall Street was a

dominant issue during Fed chair-designate Janet Yellen's

confirmation hearing before a Senate committee on Thursday.

Yellen, widely expected to win Senate backing for the job, said

financial regulation should be on par with monetary policymaking

on the Fed's list of priorities.

The central bank's current vice chair, Yellen appeared

willing to draw fellow governors on the powerful Fed Board into

more decisions on stabilizing the still-vulnerable financial

system.

In a telling exchange with Sen. Elizabeth Warren, Yellen

said it was a "worthwhile idea" to consider reinstating regular

board meetings to tackle financial supervision, as was the case

at the central bank in the 1990s.

In strong language, she also said she was prepared to use

traditional monetary policy tools such as higher interest rates

to prick any emerging asset-price bubbles, and pledged that

addressing too-big-to-fail banks "has to be among the most

important goals of the post-crisis period."

While Yellen and current Fed Chairman Ben Bernanke often

speak of the need to do more to curb Wall Street risk-taking and

erase the notion the government will step in to bail out massive

banks that get into trouble, as it did in the midst of the

crisis, Yellen's testimony hints at a new approach.

"She was unambiguously clear on how the Fed has massively

revamped supervision of big banks, and left me with the sense

she will spend more time discussing macroprudential oversight

with colleagues than in the past," said William O'Donnell, head

of Treasury strategy at RBS Americas.

"It suggested they would shift to a better balance of

macroprudential and monetary policy."

The Dodd-Frank law in the wake of the 2007-2009 financial

crisis and Great Recession tasked the Fed with protecting the

overall financial system from risks that could spill into the

broader economy, something called macroprudential regulation.

The 2010 law effectively doubled down on the central bank's

regulation of Wall Street, even though Fed policymakers -

including Yellen, who ran the San Francisco Fed at the time -

failed to avert the crisis in the first place.

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