'Need powers to insulate eco if big Wall St firm collapses'

Federal Reserve Chairman Ben Bernanke, and Treasury Secretary Henry Paulson have told Congress that the new regulatory powers are needed to insulate the US economy from damage, if a big Wall Street firm collapses, reports CNBC-TV18. This recommendation was part of a broader debate before the House Financial Services Committee about the best ways to revamp the country's antiquated regulatory system, and brace it for modern-day crises like the housing and credit debacles.

Bernanke has got the backing of the government for this move. Treasury Secretary Henry Paulson said government intervention to rescue a firm must be only an extraordinary measure. "Any potential commitment of government support should be an extraordinary event, that requires engagement of the Treasury Department, and contains sufficient criteria to prevent cost to the taxpayer to the greatest extent possible. This work will not be done easily. It must begin now, and begin in earnest."

The Fed Chairman said that to effectively constrain market risk, some firms must be allowed to fail. "However, government-sponsored entities are adequately capitalized."