Federal Reserve press conference, 2012-06-20 — Chair Ben Bernanke

Question (Zachary Goldfarb, Washington Post): Thank you. Mitt Romney recently said that QE2 had a relatively little impact on the economy. He said that was in part because of the President’s policies, and he said that QE3 was unwarranted and could have negative effects. Do you agree that QE2 had little effect on the economy? Do you think the President’s policies has had an effect on the effectiveness of monetary policy? And do you think it’s appropriate for a presidential candidate to comment on the future path of monetary policy?
Answer: Well, I’ll just say first that we think that both of the asset purchase programs, so-called QE1 and QE2, did have significant effects on asset prices and financial conditions. And although there were certain problems in transmission—for example, the housing market has not been as responsive as it’s been in some times in the past—we do think that they were both effective in providing support for the economy, and in particular, so- called QE2 ended what looked to be an incipient deflation problem when we first introduced it. So, I do think those have been effective, and as I said to Mr. Hilsenrath, we think that these kinds of programs can still provide additional support. With respect to the rest of your questions, I just want to reiterate that the Federal Reserve is nonpartisan, we are very serious about taking our decisions based on purely economic grounds without political considerations, and we’ll continue to do that.

Question (Donna Borak, American Banker): Hi Chairman, Donna Borak with American Banker. There have been a lot of questions raised as to whether the Volcker rule would have helped prohibit the trading loss of J.P. Morgan. Given that regulators are in the middle of the rule-writing process and also examining what exactly went wrong, as a supervisor, do you think at this moment it’s the right time to perhaps “pump the brakes,” so to speak, and slow down the rule-writing process or has this recent episode really made it a stronger case for proceeding with the Volcker rule expeditiously? And, secondly, if I may, since—given that you’ve suggested that regulators might be late on the rule, surpassing the July 21st deadline, could you perhaps give us a target on when regulators are looking to release the rule? Thank you.
Answer: Well, on the second question, it’s a five-agency rule, I believe, and so a lot of coordination and cooperation is needed, and we had something like 18,000 comment letters, so it’s been a very difficult process in terms of the amount of work that has to be done, amount of coordination that has to be done, so I don’t have a date for you. I think if there’s a silver lining to the events you referred to, it may be that there’s some things we can learn in terms of writing the rule and thinking about how it would work. One aspect of our rule that I think would have been important in the context of the loss is that, in the rule, a bank would be required to provide a plan in advance explaining how the hedge was going to be done, how it was going to work. It would be necessary to have an auditing process to make sure that, in fact, that was being followed, that there were adequate risk management and governance rules to oversee the process, and it would be necessary that compensation for the executives involved in the management of the position would not be such that it would incentivize them to take proprietary positions. So, one aspect of the rule that might have been relevant—and again, we are still looking at that situation, as are the OCC and others—would have been the control, the governance aspects of it, and that might have potentially changed the outcome.