While Bernanke made a case for close monitoring of hedge funds, he shied away from advocating that they be directly and more heavily regulated like banks.
''Direct regulation may be justified when market discipline is ineffective at constraining excessive leverage and risk-taking but, in the case of hedge funds, the reasonable presumption is that market discipline can work," Bernanke said.
Today some 7,000 to 9,000 hedge funds in the United States command an estimated $1 trillion in assets and are believed to account for as much as 20 percent of all US stock trading.
Debate about hedge funds -- their benefits and risks -- abated for a time but ''has now resumed with vigor -- spurred no doubt by the creation of many new funds," Bernanke said.
Hedge funds -- high-risk, largely unregulated and secretive investment pools -- have traditionally been the investment domain of the wealthy but have become popular with small investors in recent years.
The Securities and Exchange Commission, concerned about the explosive growth in recent years of hedge funds and their virtually unbridled operations, brought them under new supervision this year.
Under the SEC rule, most hedge fund managers now must register with the agency. That opens the funds' books to SEC examiners and makes them subject to an array of regulations including accounting and disclosure requirements. The examiners will be able to conduct inspection ''sweeps" of hedge funds.
Bernanke, who took over the Fed job on Feb. 1, questioned the usefulness of various proposals for regulatory authorities to create and maintain a computer database containing detailed financial information on hedge funds.
