WASHINGTON — The controversial financial market interventions that have stoked populist anger and opened the Federal Reserve Board to unprecedented political pressure were necessary to avoid a far deeper financial crisis, Chairman Ben Bernanke told lawmakers during his confirmation hearing on Thursday.
"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," he told the Senate Banking Committee in written testimony.
The Fed "created targeted lending programs that helped restart the flow of credit in a number of credit markets, including the commercial paper market and the market for securities backed by loans to households and small businesses. …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."
His comments are counter to scathing criticisms many lawmakers have lobbed at the Fed for its lending programs and, in particular, the rescues of American International Group Inc. Bernanke's reappointment would typically be a rather low-key affair on Capitol Hill but President Obama's decision to give him another four years at the helm of the Fed has inflamed passions about the government's response to the financial crisis.
Sen. Bernie Sanders said on Wednesday that he placed a hold on Bernanke's confirmation, a Senate maneuver that will require Democratic leaders to line up 60 votes in support of the Fed chief before proceeding.
"The American people want a new direction on Wall Street and at the Fed," the Vermont Independent said in a press release.
Still, Senate Banking Chairman Chris Dodd said he thinks Bernanke deserves another term.
"I will vote to support your nomination, because I believe that you are the right leader for this moment in our nation's economic history and I think your reappointment sends the right signal to the markets," the Connecticut Democrat said according to text of his opening statement.
Despite his support of Bernanke, Dodd continued to press his legislation that would strip the Fed of its bank supervision duties and focus it solely on monetary policy.
"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," he said.
The Fed also faces a threat from legislation sponsored in the Senate by Sanders that would subject the Fed to broad audits of its activities, including monetary policy. A similar provision has already passed the House Financial Services Committee and Bernanke took the opportunity on Thursday to again oppose the measure.
"Congress, through the Government Accountability Office, can and does audit all parts of operations, except for monetary policy," he said. "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."
Bernanke also told lawmakers that the Fed is learning lessons from its failures in banking supervision, and is moving toward a more holistic view of oversight.
"We have been actively engaged in identifying and implementing improvements in our regulation and supervision of financial firms," he said. "To complement on-site supervisory reviews, we are also creating an enhanced quantitative surveillance program that will make use not only of supervisors, but also of economists, specialists in financial markets, and other experts within the Federal Reserve."