Who's afraid of banks? Not the Fed, official says

By John Poirier

WASHINGTON (Reuters) - As U.S. regulators reflect on lessons learned from the subprime mortgage crisis, the Federal Reserve admitted on Tuesday it should have been more forceful with the banks it supervises.

Fed Vice Chairman Donald Kohn told a Senate Banking Committee hearing that the Fed had tried to warn banks of potential threats to their balance sheets from years of easy credit and complex securitized products.

"One of the lessons learned is that we need to be more forceful," Kohn said when pressed by Sen. Richard Shelby, the top Republican on the panel, to explain why bank regulators did not spot subprime mortgage problems earlier.

"We did not perform flawlessly. I absolutely agree with that," Kohn said, adding that the Fed was conducting an internal review of what it should have done differently.

Asked by Shelby if the Fed was afraid of the banks that it supervises, Kohn responded: "No."

More of the Fed's findings could be discussed in early May, when Committee Chairman Christopher Dodd says he will hold another hearing to focus again on ways to stem soaring home foreclosures.

Through public speeches and private meetings with bank representatives over years, the Fed tried to warn banks about their exposure to risky subprime mortgages before they exploded into the current crisis, Kohn said.

"That might not be the most effective way to make a point." said Democrat Jack Reed of Rhode Island. "I have to ask questions about the culture of regulation at the Fed."