Federal Reserve Chairman Ben Bernanke says the central bank is working closely with other regulators to implement the biggest overhaul of the nation's financial rules since the 1930s.
The law enacted last year aims to protect the country from another financial crisis like the one that hit in 2008 and plunged the economy into a deep recession.
The Fed chief testified at a Senate Banking Committee hearing Thursday that work is under way to set up a government agency housed within the Fed for protecting consumers from abusive financial practices.
Bernanke said regulators should "do the best that we can" to identify which institutions are so big and interconnected that they could pose serious risk to the stability of the financial system. There should be guidelines and not hard and fast rules, he indicated.
"It is a difficult problem," Bernanke said. "It will never be a perfect process."
The firms fall into that category will have to meet tougher regulatory standards, such as limitations on their use of borrowed money. The financial law also gives regulators power to break up firms that pose a significant risk to the system.
Sen. Richard Shelby of Alabama, the panel's senior Republican, complained that regulators have rushed to meet "unrealistic" deadlines for rulemaking set by the overhaul law, and that may have hurt the quality of the new and proposed regulations. Republican lawmakers in recent days have expressed criticism about the rulemaking six months after the law was enacted.
"We should begin considering whether the final rules would be better if our regulators had more time to hear from the public," Shelby said.
He also said there are "serious questions" about the willingness and ability of regulators to make economic analyses of the potential costs to businesses of proposed rules.
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