Dec. 4 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke left a Senate confirmation hearing with support for a second term heading a central bank that may be shorn of its powers to supervise financial firms.
Banking Committee Chairman Christopher Dodd of Connecticut backed Bernanke yesterday and said he’s likely to be confirmed by the full Senate. Dodd credited Bernanke with preventing a financial meltdown, even though the Fed’s oversight of banks leading up to the crisis was an “abysmal failure.”
Bernanke told the committee that the Fed’s ability to maintain a stable financial system and conduct monetary policy is “critically dependent” on its supervision powers. He got no assurances that the Fed’s authority would remain intact as Congress considers an overhaul of financial regulations in a bid to prevent a repeat of the worst crisis since the 1930s.
“The Fed chairman will have won the battle but lost the war if Congress strips the Fed of its authority to regulate banks,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
Dodd’s bill would consolidate oversight of banks, now shared between the Fed and three other regulators, into a single new agency. He would also deprive the Fed of consumer-protection powers and curtail its ability to make emergency loans to troubled firms.
“We shouldn’t have had to go through what we did for the last two years, had there been cops on the street doing their job, telling us what was going on, and allowing us to avoid the problem in the first place,” said Dodd, a Connecticut Democrat.
Dodd’s proposal differs from plans offered by the Obama administration and House Financial Services Committee, which would maintain the Fed’s supervisory powers.
Regulatory Gaps
The current system of shared supervision of financial firms has left regulatory gaps that “contributed to the depth of the crisis,” Bank of Israel Governor Stanley Fischer said yesterday in New York at a press conference by the Group of Thirty, an assembly of senior financial officials and economists.
“The concern we have is that as the crisis passes, the reforms are not going to be undertaken and we will find ourselves dealing with a system more or less as it is now,” said Fischer, a former International Monetary Fund first deputy managing director who advised Bernanke on his doctoral thesis at the Massachusetts Institute of Technology.
Dodd faulted the Fed for failing to protect consumers from predatory lending and for tolerating excessive risk-taking by banks. Some of the lenders, including Citigroup Inc. and Bank of America Corp., had to be bailed out with taxpayer funds.
Richard Shelby of Alabama, the committee’s ranking Republican, said the Fed “has done a horrible job” as a supervisor and “will have to give up some of the regulatory authority.” He didn’t say whether he would support Bernanke.
‘Not Adequately Prepared’
Bernanke, a 55-year-old former Princeton University economics professor, said he didn’t anticipate the depth of the crisis and many banks “were not adequately prepared in terms of their reserves, in terms of their liquidity.”
“That is a mistake we won’t make again,” he said. Still, the Fed bank supervisors provided information needed to monitor the financial system, Bernanke said.
“Our ability to respond to the crisis, to address problems in the banking system, to help stabilize key markets was critically dependent on our ability to see what was going on in the banking system,” he said.
Some of the harshest criticism came from Senator Jim Bunning, the Kentucky Republican who was the lone lawmaker to oppose Bernanke’s 2005 nomination. Bunning told Bernanke that the bailout of American International Group Inc. in 2008 was “reason enough to send you back to Princeton.”
DeMint, Vitter
Bunning said he would do “everything I can to stop your nomination and drag out the process as long as possible.” Two other Republicans, Jim DeMint and David Vitter, said they may try to delay confirmation until Congress votes on increased powers to audit the Fed.
Dodd said he didn’t know when the committee would vote to recommend Bernanke’s nomination to the Senate. He said an effort by Senator Bernard Sanders to delay or derail confirmation would probably fail. Republican Senator Bob Corker of Tennessee said a vote on the Senate floor may be one or two months away.
The Fed under Bernanke has cut interest rates almost to zero and pumped more than $1 trillion into the financial system to battle the recession.
The Standard & Poor’s 500 Index has jumped almost 63 percent from its 2009 low on March 9 as the economy showed signs of revival. The S&P 500 retreated 0.8 percent yesterday to 1,099.92 after a report showed U.S. services industries unexpectedly contracted in November.
Rising Profits
Public anger over bailouts of financial firms has been amplified as Wall Street banks report rising profits while average Americans cope with the loss of 7.3 million jobs since the start of the recession in December 2007. Goldman Sachs Group Inc. said Oct. 15 that third-quarter profit more than tripled to $3.19 billion from a year earlier.
“The Fed is a convenient whipping boy,” said Dean Croushore, a former Philadelphia Fed economist who is now chair of the economics department at the University of Richmond in Virginia. “Members of Congress want to show they’re tough.”
The Fed is already beefing up regulation with system-wide reviews of commercial real-estate risk and compensation practices.
“The criticisms are well placed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina and former economist for the banking committee. “If you want to keep your powers, why weren’t you using them?”
No comments:
Post a Comment