"The [Fed], with its record on consumer protection already under fire, now faces questions about how well it has supervised banks. ... 'We've seen major institutions write off billions of dollars, mostly because of off-balance sheet transactions. And it's quite clear that the Fed is there on a daily basis, in all the institutions,' Sen. Jack Reed (D., R.I.) said at the hearing. It's clear, 'these banks were taking lots of risks that they didn't really see as risk. Are you ... disappointed that your regulatory apparatus didn't ... monitor the banks more closely?' Mr. Bernanke responded that the Fed needs 'to look in a much tougher way at the risk-managment procedures the banks have.' But he added, once 'they've done all the due diligence, it's hard for us to say, "That's a bad investment." That's not our role.' ... Bernanke ... rejected suggestions the U.S. could get stuck in a 1970s-style combination of high and rising inflation and stagnant growth known as stagflation: 'I don't think we're anywhere near the situation that prevailed in the 1970s. I do expect inflation to come down. If it doesn't we will have to react to it,' he said. ... The Fed has failed 'to provide the appropriate supervisory oversight for the major money-center banks,' Harvard economist Martin Feldstein wrote in a recent opinion piece in the [WSJ]", my emphasis, Greg Ip and Damian Paletta at the WSJ, 29 February 2008.
"A top [Fed] official said the central bank failed to fully appreciate risks that financial institutions were taking before the recent credit problems, and is reviewing its regulations.During a sometimes contentious Senate hearing, Fed Vice Chairman Donald Kohn said the central bank is likely to become 'more forceful' with the financial institutions it supervises. Mr. Kohn didn't explain what actions the Fed might take. ... Sen. Shelby asked Mr. Kohn is the Fed 'was afraid of the banks they regulate.' Mr. Kohn quickly responded no", my emphasis, WSJ, 5 March 2008.