(Updates with Kohn on consumer protection)

WASHINGTON, July 9 (Reuters) - The following are highlights from the House
Financial Services subcommittee hearing on Thursday with Federal Reserve Vice
Chairman Donald Kohn testifying on a White House proposal for the Fed to take
on a systemic risk regulation role.

For a story on Kohn's testimony, see [ID:nN09459071]

For the text of Kohn's prepared testimony, see [ID:nN09458743]

To access other stories on Fed policy, see [FED/AHEAD]

KOHN ON FED'S CONSUMER PROTECTION FUNCTION:

"My personal view is that the Federal Reserve is well placed to do a good
job in the public interest on consumer regulation. I think the fact that we
have various disciplines within the (Fed) system: we have a view of the
macroeconomy, the markets, our supervision system -- these are congruent with
good consumer regulation. (They) give us a way of balancing issues having to do
with consumer regulation ... "

"I would hope that the Congress might think about whether there are ways of
strengthening the Federal Reserve's commitment to consumer regulation as an
alternative to creating a new regulator."

KOHN ON RELEASING TRANSCRIPTS OF POLICY MEETING:

"I would be very concerned that releasing those transcripts earlier would
inhibit debate. I think it is in the public interest that we have an unfettered
debate within the open market committee."

"In my view, publishing the transcripts themselves have had a somewhat
inhibiting affect on the way the debate is carried out. There are many more
prepared statements at open market committee meetings now than there were
before the transcripts were published."

"If (policy-makers') remarks were going to be made public very quickly,
they would be very worried about what they were going to say, and they would be
much more careful about what they were saying, and that is not in the public
interest."

KOHN ON SYSTEMIC RISK ROLE WOULDN'T GREATLY INCREASE POWER:

"The additional authority we're getting is incremental to what we already
have. So, it's not a huge increase in our authority."

KOHN ON WHY MONETARY, SYSTEMIC RISK CONFLICTS WOULD BE MINIMAL:

"I think there are minimal possibilities (of conflicts). ... In my view, I
think there really is a congruence between the stability of the financial
system and monetary policy. We can achieve our objectives of maximum employment
and stable prices much more readily in a stable financial system. So, I just
don't see important instances in which there would be conflicts."

KOHN ON BUDGET DEFICITS AND INFLATION:

"History provides numerous examples of non-independent central banks being
forced to finance large government budget deficits. Such episodes invariably
lead to high inflation. Given the current outlook for large federal budget
deficits in the United States, this consideration is especially important. Any
substantial erosion of the Federal Reserve's monetary independence likely would
lead to higher long-term interest rates as investors begin to fear future
inflation."

KOHN ON NEED FOR FED INDEPENDENCE IN MONETARY POLICY:

"Because excessively easy monetary policy tends to boost economic activity
temporarily before the destabilizing effects of higher inflation are felt,
policymakers with a relatively short-term outlook may be tempted to ease
monetary policy too much. The eventual result is higher inflation without any
permanent benefit in terms of employment, an outcome that is inconsistent with
the dual mandate for maximum employment and price stability. Thus the increase
in inflation must be followed by policies to bring inflation back
down--policies that have the side effect of temporarily reducing output and
employment."

KOHN ON FED AS SYSTEMIC RISK REGULATOR:

"The current financial crisis has clearly demonstrated the need for the
United States to have a comprehensive and multifaceted approach to containing
systemic risk. ... The Federal Reserve and other central banks have always been
involved in issues of systemic risk, most notably because central banks act as
lenders of last resort. Central banks, which operate in markets daily and have
macroeconomic responsibilities, bring a broad and unique perspective to
analysis of developments in the financial system. And, as we have seen over the
past two years, threats to the stability of the financial system can have major
implications for employment and price stability. Thus, the Federal Reserve's
monetary policy objectives are closely aligned with those of minimizing
systemic risk. To the extent that the proposed new regulatory framework would
contribute to greater financial stability, it should improve the ability of
monetary policy to achieve maximum employment and stable prices.