Ben S Bernanke: Confirmation hearing
Testimony by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal
Reserve System, before the Committee on Banking, Housing, and Urban Affairs, US Senate,
Washington DC, 3 December 2009.
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Chairman Dodd, Senator Shelby, and members of the Committee, I thank you for the
opportunity to appear before you today. I would also like to express my gratitude to President
Obama for nominating me to a second term as Chairman of the Board of Governors of the
Federal Reserve System and for his support for a strong and independent Federal Reserve.
Finally, I thank my colleagues throughout the Federal Reserve System for the remarkable
resourcefulness, dedication, and stamina they have demonstrated over the past two years
under extremely trying conditions. They have never lost sight of the importance of the work of
the Federal Reserve for the economic well-being of all Americans.
Over the past two years, our nation, indeed the world, has endured the most severe financial
crisis since the Great Depression, a crisis which in turn triggered a sharp contraction in
global economic activity. Today, most indicators suggest that financial markets are stabilizing
and that the economy is emerging from the recession. Yet our task is far from complete. Far
too many Americans are without jobs, and unemployment could remain high for some time
even if, as we anticipate, moderate economic growth continues. The Federal Reserve
remains committed to its mission to help restore prosperity and to stimulate job creation while
preserving price stability. If I am confirmed, I will work to the utmost of my abilities in the
pursuit of those objectives.
As severe as the effects of the crisis have been, however, the outcome could have been
markedly worse without the strong actions taken by the Congress, the Treasury Department,
the Federal Reserve, the Federal Deposit Insurance Corporation, and other authorities both
here and abroad. For our part, the Federal Reserve cut interest rates early and aggressively,
reducing our target for the federal funds rate to nearly zero. We played a central role in
efforts to quell the financial turmoil, for example, through our joint efforts with other agencies
and foreign authorities to avert a collapse of the global banking system last fall; by ensuring
financial institutions adequate access to short-term funding when private funding sources
dried up; and through our leadership of the comprehensive assessment of large U.S. banks
conducted this past spring, an exercise that significantly increased public confidence in the
banking system. We also created targeted lending programs that have helped to restart the
flow of credit in a number of critical markets, including the commercial paper market and the
market for securities backed by loans to households and small businesses. Indeed, we
estimate that one of the targeted programs - the Term Asset-Backed Securities Loan Facility
- has thus far helped finance 3.3 million loans to households (excluding credit card
accounts), more than 100 million credit card accounts, 480,000 loans to small businesses,
and 100,000 loans to larger businesses. And our purchases of longer-term securities have
provided support to private credit markets and helped to reduce longer-term interest rates,
such as mortgage rates. Taken together, the Federal Reserve's actions have contributed
substantially to the significant improvement in financial conditions and to what now appear to
be the beginnings of a turnaround in both the U.S. and foreign economies.
Having acted promptly and forcefully to confront the financial crisis and its economic
consequences, we are also keenly aware that, to ensure longer-term economic stability, we
must be prepared to withdraw the extraordinary policy support in a smooth and timely way as
markets and the economy recover. We are confident that we have the necessary tools to do
so. However, as is always the case, even when the monetary policy tools employed are
conventional, determining the appropriate time and pace for the withdrawal of stimulus will
require careful analysis and judgment. My colleagues on the Federal Open Market
Committee and I are committed to implementing our exit strategy in a manner that both
supports job creation and fosters continued price stability.
A financial crisis of the severity we have experienced must prompt financial institutions and
regulators alike to undertake unsparing self-assessments of their past performance. At the
Federal Reserve, we have been actively engaged in identifying and implementing
improvements in our regulation and supervision of financial firms. In the realm of consumer
protection, during the past three years, we have comprehensively overhauled regulations
aimed at ensuring fair treatment of mortgage borrowers and credit card users, among
numerous other initiatives. To promote safety and soundness, we continue to work with other
domestic and foreign supervisors to require stronger capital, liquidity, and risk management
at banking organizations, while also taking steps to ensure that compensation packages do
not provide incentives for excessive risk-taking and an undue focus on short-term results.
Drawing on our experience in leading the recent comprehensive assessment of 19 of the
largest U.S. banks, we are expanding and improving our cross-firm, or horizontal, reviews of
large institutions, which will afford us greater insight into industry practices and possible
emerging risks. To complement on-site supervisory reviews, we are also creating an
enhanced quantitative surveillance program that will make use of the skills not only of
supervisors, but also of economists, specialists in financial markets, and other experts within
the Federal Reserve. We are requiring large firms to provide supervisors with more detailed
and timely information on risk positions, operating performance, and other key indicators,
and we are strengthening consolidated supervision to better capture the firmwide risks faced
by complex organizations. In sum, heeding the lessons of the crisis, we are committed to
taking a more proactive and comprehensive approach to oversight to ensure that emerging
problems are identified early and met with prompt and effective supervisory responses.
We also have renewed and strengthened our longstanding commitment to transparency and
accountability. In the making of monetary policy, the Federal Reserve is highly transparent,
providing detailed minutes three weeks after each policy meeting, quarterly economic
projections, regular testimonies to the Congress, and much other information. Our financial
statements are public and audited by an outside accounting firm, we publish our balance
sheet weekly, and we provide extensive information through monthly reports and on our
website on all the temporary lending facilities developed during the crisis, including the
collateral that we take. Further, our financial activities are subject to review by an
independent inspector general. And the Congress, through the Government Accountability
Office, can and does audit all parts of operations, except for monetary policy and related
areas explicitly exempted by a 1978 provision passed by the Congress. The Congress
created that exemption to protect monetary policy from short-term political pressures and
thereby to support our ability to effectively pursue our mandated objectives of maximum
employment and price stability.
In navigating through the crisis, the Federal Reserve has been greatly aided by the regional
structure established by the Congress when it created the Federal Reserve in 1913. The
more than 270 business people, bankers, nonprofit executives, academics, and community,
agricultural, and labor leaders who serve on the boards of the 12 Reserve Banks and their
24 Branches provide valuable insights into current economic and financial conditions that
statistics cannot. Thus, the structure of the Federal Reserve ensures that our policymaking is
informed not just by a Washington perspective, or a Wall Street perspective, but also a Main
Street perspective.
If confirmed, I look forward to working closely with this Committee and the Congress to
achieve fundamental reform of our system of financial regulation and stronger, more effective
supervision. It would be a tragedy if, after all the hardships that Americans have endured
during the past two years, our nation failed to take the steps necessary to prevent a
recurrence of a crisis of the magnitude we have recently confronted. And, as we move
forward, we must take care that the Federal Reserve remains effective and independent, with
the capacity to foster financial stability and to support a return to prosperity and economic
opportunity in a context of price stability.
Thank you again for the opportunity to appear before you today. I would be happy to respond
to your questions.