FDIC's Bair says Fed role legitimate issue: report

WASHINGTON (Reuters) - A top U.S. bank regulator said on Friday lawmakers must think carefully about adding expanded financial supervision to the Federal Reserve's monetary responsibility as they overhaul the regulatory structure.

"There's a legitimate policy issue about what you want the appropriate separation of powers, the checks and balances, to be, where you want to vest this authority," Federal Deposit Insurance Corp Chairman Sheila Bair said in an interview on CNBC Television.

"Particularly if you have an era, as we did, of generous monetary policy, of low interest rates, but you need a very robust regulatory and supervisory system, because easy credit by itself will put down the pressure on lending practices," Bair said. "So I think this is a very legitimate issue that needs to be looked at by Congress."

Bair, whose agency regulates state-chartered banks and administers a fund that insures bank deposits, said giving a council of regulators strong powers to ensure the health of the broad system of banking and finance could be a way to achieve regulatory reforms.

The Obama administration on Wednesday proposed a major overhaul of government supervision of banks and finance aimed at fixing flaws that led to the worst financial crisis in 75 years. The Fed, which sets benchmark short-term interest rates to keep the economy growing without dangerous inflation, would be responsible for overseeing the stability of the system as well under the plan.

U.S. politicians of both parties and others have questioned whether the Fed, which some believed failed to halt practices that led to the crisis, should take on additional supervisory responsibilities. The Fed is the U.S. central bank.

(Reporting by Mark Felsenthal; Editing by James Dalgleish)