The US Federal Reserve and the Securities and Exchange Commission said Monday that they had agreed to deepen ties to better monitor cash-strapped banks which are reeling from a credit crunch.
The closer ties were announced as US lawmakers review possible changes to the regulatory environment that could help avoid a repeat of the credit squeeze and the downfall of another major investment bank like Bear Stearns.
Federal Reserve chairman Ben Bernanke and SEC chairman Christopher Cox have signed a memorandum of understanding between the two powerful agencies to boost information sharing and bank policing.
"The importance of this deepened cooperation is highlighted by the recent stress in the financial markets affecting commercial and investment banks, as well as many other market participants," the SEC said in a statement.
America's banking industry is reeling from a sweeping credit crunch, which was partly triggered by multibillion dollar bank losses tied to ailing mortgage investments which have soured dramatically following a lengthy housing market downturn.
Many banks have tightened lending, which has hit consumers seeking new mortgage and car loans, as they seek to shore up their tattered finances.
The stepped-up government coordination comes after the Fed endured congressional criticism for assisting in Bear Stearns's rescue in March, and for helping to broker a takeover of Bear by JPMorgan Chase.
The Fed has taken steps to underpin the banking sector by pumping tens of billions of dollars into the markets and by broadening its special lending programs to banks.
Treasury Secretary Henry Paulson, a former Wall Street banker, welcomed the enhanced cooperation.
The plan "is consistent with the long-term vision of Treasury's 'Blueprint for a Modernized Regulatory Structure' and should help inform future decisions as our Congress considers how to modernize and improve our regulatory structure," Paulson said.
Major banks are due to report their second quarter earnings in coming weeks and analysts predict that some large institutions will continue to post multibillion dollar losses.
