Home  »  Economy  »  Shelby On Bernanke: “Our Trust And Confidence Was Misplaced”

Dec 4, 2009 2 Comments ›› Erik Wong

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Financial Times:

Ben Bernanke on Thursday urged Congress not to take away the Federal Reserve’s bank supervision powers or curtail its independence even as he admitted that the US central bank had made regulatory mistakes in the run-up to the crisis.

“We must take care that the Federal Reserve remains effective and independent,” Mr Bernanke told the Senate banking committee during his confirmation hearing for a second term as Fed chairman.

Amid tough but generally respectful questioning, most senators appeared ready to support Mr Bernanke’s renomination, but many voiced deep concerns about the Fed as an institution and challenged the chairman’s views as to the roles it should play in the future.

Chris Dodd, Democratic chairman of the committee, said the Fed had “failed terribly” as a bank regulator. He said Mr Bernanke was “the right leader for this moment in our nation’s economic history” – but said he wanted to pare back the Fed’s responsibilities to focus it more narrowly on monetary policy.

Richard Shelby, senior Republican on the committee, withheld his support for Mr Bernanke, saying: “For many years I held the Federal Reserve in very high regard . . . I fear now, however, that our trust and confidence was misplaced.”

The Fed chairman for his part repeatedly questioned the wisdom of Mr Dodd’s plan to take banking supervision out of the Fed as part of a regulatory overhaul. “It is a fundamental issue about the soundness of the plan,” he said.

Meanwhile, Mr Bernanke assured legislators that he was very focused on high unemployment, now at 10.2 per cent. “Jobs are the issue right now . . . the biggest challenge, the biggest problem we face,” he said.

The Fed chief said near-zero interest rates were not fuelling asset price bubbles in the US and that it was not the Fed’s job to prevent bubbles abroad.

“US monetary policy is intended to address both financial and economic issues in the US,” he said. “Countries that are concerned about that have their own tools to address bubbles in their own countries.”

However, Mr Bernanke said the Fed would monitor asset prices. The Fed chairman also said the Fed had not made a final decision to end asset purchases, as scheduled in March, saying the committee would decide “whether or not to do more” based on the economic outlook.

Mr Bernanke pledged “unsparing self-assessments” of the central bank’s failings in the run-up to the crisis, admitting that the Fed had fallen short on consumer protection and bank supervision. But he argued the Fed needed to retain its bank supervision role in order to be an effective lender of last resort and maintain financial stability.