In a compromise with other financial regulators, Federal Reserve Chairman Ben Bernanke asked Congress on Thursday to give all regulators -- not just the Fed -- more powers to identify, monitor and contain firms that could get so big that their failure could threaten the entire economy.

Bernanke, in a shift that likely reflects political realities, went beyond the Obama Administration’s regulatory reform proposals and endorsed a “reorientation of individual agency mandates” in his testimony to the House Financial Services Committee. In effect,  the change could put all regulators on equal footing in protecting  the financial system against “systemic risk” -- a group effort.

But Bernanke reiterated his support for an Administration reform proposal that would give the Fed sole authority to designate and regulate big, integrated, “systemically important” firms. As a result, some analysts predicted Bernanke’s turf battle with other regulators would continue.

“It doesn’t really change anything,” said banking analyst Bert Ely of Ely & Co. in Alexandria, Va.

The Administration’s plan would create a Financial Services Oversight Council to monitor “systemically important" companies like Citigroup (C), Bank of America (BAC) and American International Group (AIG).  Council members would include the Treasury Secretary, the chairman of the Federal Reserve, the chairman of the Securities and Exchange Commission, the chairman of the Federal Deposit Insurance Corporation and other regulators.

But under the plan, the Fed would be the government’s key power player.  The Fed, “not a committee of multiple agencies,” would have sole power to designate  systemically important firms and supervise them -- including their capital levels, liquidity and risk management practices -- “to maximize financial stability at the lowest cost to long-term financial and economic growth,” the Administration said in its reform outline.

It argued just one entity should be accountable for oversight and could react more quickly in a crisis. The council would only recommend candidate companies for Fed supervision.

Some regulators, however -- notably, Sheila Bair, the head of the FDIC, and Mary Schapiro, chief of the SEC -- have publicly and repeatedly criticized this Fed-centric plan, saying among other things that they should not be relegated to a secondary role and that new designation and supervisory powers be vested in the full oversight council. It’s an argument they have been winning -- many lawmakers now agree with them.  

"There were some, myself included, who earlier this year thought that the Federal Reserve would have a larger role in this. Now it looks like it will be part of a conciliar structure," House Financial Services Committee Chairman Barney Frank (D-Mass.) said at the hearing.

In his testimony, Bernanke urged Congress give other regulators more powers to act more on their own against firms that could become “too big to fail.”

"To further encourage a more comprehensive and holistic approach to financial oversight, all federal financial supervisors and regulators -- not just the Federal Reserve -- should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities," Bernanke said.

In the text of the testimony, “all” is italicized for emphasis.

In answers to lawmakers’ questions, Bernanke said, “We have never supported, and the Administration has never supported, a situation in which the Fed would be some sort of untrammeled super regulator over the entire system. That is not what has ever been contemplated.” 

But Bernanke again argued that because of the Fed’s expertise and experience, Congress should make it the ultimate, sole supervisor of a firms designated “systemically important.” He also did not back away from the Administration’s proposal to limit the role and authority of the oversight council.   

“My position has not changed at all,” he said. “The original Administration proposal proposes a council and we support the council. We think it has a very valuable role to play. And we think that underneath the council, each of the agencies, including the Fed but also including the SEC and others, should be looking at the systemic implications of their actions and working together, through the council, to look at the whole system.”

He said that despite other regulators’ criticism of the Administration’s plan, “I think there is pretty broad support for the Federal Reserve playing that role as the consolidated supervisor of these large financial firm.”

But he acknowledged, “I think there is a bit of difference about exactly where the authorities of the systemic risk council would end and where the authorities of the individual agencies would begin, and I think they’re within the range of negotiations.” 

In his written testimony, Bernanke specifically asked Congress to “support a reorientation of individual agency mandates to include not only the responsibility to oversee the individual firms or markets within each agency’s scope of authority, but also the responsibility to try to identify and respond to the risks those entities may pose, either individually or through their interactions with other firms or markets, to the financial system more broadly.”

“These actions could be taken by financial supervisors on their own initiative or based on a request or recommendation of the oversight council,” he said. “Importantly, each supervisor’s participation in the oversight council would greatly strengthen that supervisor’s ability to see and understand emerging risks to financial stability. At the same time, this type of approach would vest the agency that has responsibility and accountability for the relevant firms or markets with the authority for developing and implementing effective and tailored responses to systemic threats arising within their purview. To maximize effectiveness, the oversight council could help coordinate responses when risks cross regulatory boundaries, which often will be the case.”

Some powerful lawmakers -- including Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee, and the committee’s top Republican, Sen. Richard Shelby (R-Ala.) -- are reluctant to approve additional powers for the Fed. They say the Fed contributed to the financial crisis through sometimes-lax regulation and by keeping interest rates too low for much of the early part of the decade, which they say helped fuel the housing bubble.

“They feel the Fed has screwed up and also may be a little too independent,” Ely said.

Two weeks ago, Dodd offered his own proposal for beefing up financial regulation: merging the Fed with the Office of Thrift Supervision, the FDIC and the Comptroller of the Currency to create one “superagency.” Dodd said one of his goals is to prevent “shopping” for the most lenient regulator by financial institutions, something critics say helped bring about the financial crisis.

(The Administration had considered and rejected this idea, determining that it would be too politically difficult to pull off. In its reform plan, it only went as far as proposing a merger of the OCC and the OTS, after the OTS was widely criticized for the failures last year of Washington Mutual and IndyMac on its watch.)   

A spokesperson for FDIC Chairman Bair said she was traveling and could not be reached for comment.  A spokesperson for SEC Chairman Schapiro said, “She's on record preferring the council idea.” 

A Treasury official said, "the Obama Administration plan assigns accountability to make agencies responsible for doing their jobs. The Fed will supervise large, interconnected firms and the Council, under our plan, will have a central role in looking out for system-wide risks."

The hearing Thursday was one of 11 the House Financial Services Committee has scheduled over three weeks on regulatory reform.  Both the House and Senate committees hope to complete their work on reform legislation by the end of the year.

Ely is skeptical lawmakers can complete their work this year, if at all.  He said that aside from turf battles, regulatory reform has been troubled by complicated legal and financing questions.

“This is more than just a turf war,” he said. “It’s a briar patch.”