Federal Reserve press conference, 2013-09-18 — Chair Ben Bernanke

Question (Donna Borak, American Banker): Chairman, Donna Borak, with American Banker. The Financial Stability Oversight Council has already designated two nonbank firms as SIFIs, as you know, and potentially a third very soon, and presumably others to follow. However, little has been said in terms of how specifically these firms will be regulated by the Fed, which has been a chief criticism of the entire process. Given that, can you provide us any guidance at this point in terms of how far along the Fed is in terms of letting the banks know how they will be regulated besides, you know, tailoring the plans?
Answer: Well, the two firms that have been designated, AIG and GE Capital, actually are—have been regulated by the Fed, because both of them are savings and loan, thrift holding companies. So we have a lot of already experience with those firms and a lot of contact with those firms. We will—I want to use the word “tailored” because we want to design a regime that is appropriate for the business model of the particular firm. But our other objective, and what makes designation by the FSOC particularly noteworthy, is that the primary goal of the consolidated supervision by the Fed is to make sure that the firms—the firm doesn’t in any way endanger the stability of the broad financial system. So we’ll be looking at not just the usual safety and soundness type matters or supervision, which both can be, again, tailored to the types of assets and liabilities that the firm has, but also we’re going to want to focus on things like resolution authority, practices relating to derivatives and other exposures, interconnectedness, et cetera, to make sure that the firm in its structure and in its operations doesn’t pose a threat to the wider system. And that’s what is going to be distinctive about our oversight, not only of these designated firms, but also of the large bank holding companies that we already oversee and which we are already subjecting to tougher supervision, higher capital, stress tests, and all the rest.

Question (Peter Cook, Bloomberg): Peter Cook of Bloomberg Television, Mr. Chairman. One of my colleagues was remarking as we came in here, we don’t often get surprises from the Federal Reserve. This was a surprise, you talked about—you hadn’t telegraphed anything specifically, but you’ve seen the market reaction, I’m sure. My question for you is, were you intending a surprise today, and did you get the intended result, judging from the market reaction? And related to that, by taking this action today—continuing the bond purchases going forward—at what point do you believe you’re starting to complicate the exit strategy? Simply by continuing to keep the Fed’s foot on the gas pedal, do you make life more complicated for the Federal Reserve down the road?
Answer: Well, it’s our intention to try to set policy as appropriate for the economy, as I said earlier. We are somewhat concerned. I won’t overstate it, but we do want to see the effects of higher interest rates on the economy, particularly in mortgage rates, on housing. So to the extent that our policy makes conditions—our policy decision today makes conditions just a little bit easier, that’s desirable. We want to make sure that the economy has adequate support and, in particular, it’s less surprising the market or easing policy as it is avoiding a tightening until we can be comfortable that the economy is in fact growing, you know, the way we want it to be growing. So this was a step—it was a step, a precautionary step if you will. It was a—the intention is to wait a bit longer and to try to get confirming evidence whether to the—to whether or not the economy is, in fact, conforming to this general outlook that we have. I don’t think that we are complicating anything for future FOMCs. It’s true that the assets that we’ve been buying add to the size of our balance sheet. But we have developed a variety of tools, and we think we have numerous tools that we—can be used to both manage interest rates and to ultimately unwind the balance sheet when the time comes. So I, you know, I’m—I feel quite comfortable that we can—in particular, that we can raise interest rates at the appropriate time, even if the balance sheet remains large for an extended period. And that will be true, of course, for, you know, future FOMCs as well.