Fed Backs Additional Financial Oversight

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More regulatory action may be needed to safeguard the money-market mutual-fund industry, Federal Reserve Chairman Ben Bernanke said in remarks prepared for a speech Monday night, putting his weight behind other officials who want to toughen oversight of the $2.7 trillion industry.

In an address largely focused on scrutinizing murky corners of the financial system, the shadow banking system, Mr. Bernanke emphasized the need to establish regulations that protect the system as a whole from the risks that threatened it during the financial crisis.

The money-market mutual-fund industry remains prone to destabilizing panics even with new regulations already in place, Mr. Bernanke said in a speech at a conference here hosted by the Federal Reserve Bank of Atlanta in Stone Mountain, Ga. "The risk of runs created by a combination of fixed net asset values, extremely risk-averse investors, and the absence of explicit loss-absorption capacity remains a concern," Mr. Bernanke said in his remarks.