Lisa Simpson
Dec 1,2009
In: Bank Foreclosures

Bernanke Gives Out Warnings About Dangers in Pushing the Federal Reserve too Far

Ben Bernanke, the chairperson of Federal Reserve Board categorically warned that the provisions in the financial bill placed before the House and Senate would cause serious impairment of the Fed while it is battling to maintain its financial stability.

In a publication released on the website of The Washington Post Bernanke harshly criticized a Senate provision that “would strip the Fed of all its bank regulatory powers”. A House provision to cancel a three decade old law “to protect monetary policy from short-term political influence” also came in for his sharp indictment.

The jurisdiction of the Federal Reserve in regulating banks has come under continuous criticism within the Congress in the recent months. It is reflecting the voter’s anger at the jumbo costs the taxpayer is having to bear to bailout Wall Street.

Bernanke repeated what he has been saying for quite sometime that some of the steps taken to address the financial challenges were “distasteful and unfair” but there were no other alternatives – it was absolutely necessary.

In the House as well as in the Senate the Democratic legislators have suggested elimination of the present role of the Federal Reserve in mandating the rules for mortgages as well as credit cards. Alternatively the officials have suggested the setting up of a new federal agency for the protection of consumers that would not only set the rules but also enforce these regarding the above mentioned matters.

The published article was included in the running campaign of Bernanke to maintain the powers and sovereignty of the financial regulatory system at a time when talks are hot about it being overhauled. Previously it would have been unheard of for the chairperson of the Federal Reserve to make such public statements. Bernanke however has been more outspoken than his predecessors – perhaps reacting to the call of the times.

Bernanke said, “Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.” Regarding monetary policy Bernanke said, “independent does not mean unaccountable.” He explained that the actions being taken by the Federal Reserve were all intensively reviewed. It required protection from the influences of Congress otherwise the confidence of the public and the markets in the Federal Reserve would be undermined.

A committee of the House has completed the initial draft related to the legislation. Simultaneously a parallel measure has been placed before the Senate but it has not got the approval of the committee.

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