Calls for Improvements to the Federal Reserve
Today Chris Dodd (D-CT), chairman of the Senate Banking Committee, announced his support for Ben Bernanke to continue serving as Chairman of the Federal Reserve.
“Today, we are faced with two separate questions,” Dodd began. “First, should Ben Bernanke, our nominee, stay on as the Chairman of the Federal Reserve? And second, as this Committee works to create a financial regulatory structure for the 21st century, what should be the role of the institution that the nominee would oversee?”
“Under your leadership, Mr. Chairman, the Federal Reserve has taken extraordinary actions to right the economy,” said Dodd. “I intend to vote to support your nomination in this Committee and on the floor of the United States Senate, because I believe that you are the right leader for this moment in our nation’s economic history and I believe your reappointment sends the right signal to the markets.”
“And while I congratulate you for these efforts, I remain very concerned about the weaknesses in the overall financial regulatory system that allowed the financial collapse to occur in the first place,” Dodd continued. “You and I agree that the Federal Reserve should be strong, and very independent, and able to perform its core functions… I worry that over the years loading up the Federal Reserve with too many piecemeal responsibilities has left important duties without proper attention and exposed the Fed to dangerous politicization that threatens the very independence of this institution.”
“It has been proposed that the Fed assume yet another role in controlling threats to overall financial stability. But I fear these additional responsibilities would further distract from the Fed’s core mission and leave it open to dangerous politicization, undermining its critical independence,” Dodd cautioned.
Testimony and webcast will be available after the hearing at:
http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=371e8d90-86aa-4278-9d44-eae44ec14a77
A complete list of hearings held this year can be found at:
http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.List&Month=0&Year=2009
Below is the Chairman’s statement as prepared for delivery:
“Today, we are faced with two separate questions.”
“First, should Ben Bernanke, our nominee, stay on as the Chairman of the Federal Reserve?
“And second, as this Committee works to create a financial regulatory structure for the 21st century, what should be the role of the institution that the nominee would oversee? Does the existing structure of the Federal Reserve deserve to be maintained?”
“Too often that question has been dominated by the personality of the Fed Chairman. But, in my view, this is not about the nominee, nor is it about members of this Committee including the chairman of this Committee, this is about the institution that will be around long after the nominee and the members of this Committee are gone. What makes the most sense for the success of that institution – the Federal Reserve?”
“So first, let me address your nomination for another term as Chairman of the Federal Reserve. This is an incredibly important job during a crucial time in our nation’s history.”
“Over the last year, our nation has been rocked by a devastating economic crisis. This committee has met dozens of times to talk about its impact on our constituents – the millions of Americans who have lost their jobs, the families who have lost their homes, and those who have watched their wealth evaporate as home values dropped and investments were wiped out.”
“Under your leadership, Mr. Chairman, the Federal Reserve has taken extraordinary actions to right the economy: providing liquidity to depositories, sustaining the commercial paper market, working with the United States Treasury to restart the asset-backed securities market, and providing critical support to the housing market.”
“These efforts have played a very significant role in arresting the financial crisis and financial markets have begun to recover. For that, Mr. Chairman, you and the Federal Reserve deserve praise for your acumen and gratitude for your role in preventing a far worse outcome that we might have otherwise seen. And, I believe you deserve another term as Chairman of the Federal Reserve.”
“I intend to vote to support your nomination in this Committee and on the floor of the United States Senate, because I believe that you are the right leader for this moment in our nation’s economic history and I believe your reappointment sends the right signal to the markets.”
“And while I congratulate you for these efforts, I remain very concerned about the weaknesses in the overall financial regulatory system that allowed the financial collapse to occur in the first place.”
“Which brings me to the second question. Does the structure of the institution you oversee deserve to be maintained as it presently is constituted?”
“Today we have a regulatory structure created by historic accident as government reacted to problems with piecemeal solutions over nearly a century.”
“You and I agree that the Federal Reserve should be strong, and very independent, and able to perform its core functions: conducting monetary policy, supervising payment systems, and acting as the lender of last resort.”
“I worry that over the years loading up the Federal Reserve with too many piecemeal responsibilities has left important duties without proper attention and exposed the Fed to dangerous politicization that threatens the very independence of this institution.”
“Congress gave the Federal Reserve the authority to protect consumers in mortgage markets in 1994, but for years many of us in the Senate were frustrated in our efforts to get the Fed to address predatory lending, and the Federal Reserve failed to develop meaningful mortgage regulations until after the housing bubble burst.”
“There have been other lapses in consumer protections with the Fed doing little over the years to protect users of credit card and checking accounts from abusive company practices.”
“In addition, the Fed failed to rein in excessive risk taking by some of the largest holding companies which it supervised. Many of the firms whose irresponsible actions contributed to the crisis and ultimately required a taxpayer funded bailout did so under the Fed’s watch.”
“The lesson, I believe, we can learn from these mistakes is that the country is best served by a strong, focused central bank – not one that is saddled with so many diverse missions and competing responsibilities that its independence and competency are called into question.”
“It has been proposed that the Fed assume yet another role in controlling threats to overall financial stability. But I fear these additional responsibilities would further distract from the Fed’s core mission and leave it open to dangerous politicization, undermining its critical independence.”
“And so, as Congress takes up financial reform this year, I have proposed creating new entities outside of the Federal Reserve to focus responsibility for bank regulation, consumer protections, and systemic risk, so these important duties will not need to compete for the Federal Reserve’s attention.”
“Appreciating that conducting effective monetary policy requires full access to information on banks, my proposal preserves and expands the Fed’s ability to access to information directly from financial institutions and the new bank regulator, the ability to participate in bank exams, new authority to regulate systemically important payment and financial utilities, and a seat on the boards of the bank regulator, the systemic risk agency, and the FDIC.”
“What I am proposing does not exclude the Fed from involvement in these issues, but rather expands the participants in these efforts.”
“We share the goal of a strong, focused, independent Federal Reserve that can operate successfully as part of a new regulatory framework that will restore our nation’s economic security. And I look forward to working with you on this very important task.”
“I know there are many important issues that my colleagues will want to discuss here today as we consider your nomination.”
“Again I think you are deserving of confirmation by the United States Senate. I believe you have done a good job in helping us avoid the kind of catastrophe that could have occurred in this country. But I also believe we bear responsibility to consider the institution which you lead beyond the role of our tenor – be it as Chairman of this Committee or Chairman of the Federal Reserve.”
