Too much regulation may hurt banking innovation, Bernanke fears

WASHINGTON — Federal Reserve Chairman Ben Bernanke said Monday that bank regulators should search for ways to reduce regulatory burdens imposed on the financial system in the government’s efforts to battle terrorist financing and money laundering.

“Deterring and identifying misuse of the financial system, as important as that is, should not be so onerous that it stifles innovation … or reduces the international competitiveness of U.S. banks,” Bernanke said in remarks prepared for the annual conventions of two banking groups.

He said the central bank was determined to work to streamline the reporting processes required by the Bank Secrecy Act “without diminishing the value to law enforcement of the information produced.”

The Bank Secrecy Act, passed in 1970, is the government’s main tool in the fight against money laundering by drug traffickers and other criminals. Since the 2001 terrorist attacks, it has been increasingly used to halt the flow of financing to terrorist organizations.

Bernanke delivered his comments by satellite to separate conventions of the American Bankers Association in Phoenix and America’s Community Bankers in San Diego.

“We are ever mindful that banks and their customers bear a large share of the costs of regulation,” Bernanke said. “Minimizing the regulatory burden on banks is very important.”

In his remarks, he made no mention of the current state of the economy or what the Fed might do when officials meet on interest rates next week.

Bernanke said it was important for the banking industry to have the opportunity to get feedback from regulators on the usefulness of their reports on suspicious activity as well as guidance on ways to better identify the most significant risks.

Bernanke said the Fed was also exploring ways to reduce regulatory burdens in the implementation of new rules on capital requirements.