US Federal Reserve chairman Ben Bernanke on Thursday admitted “mistakes” leading up to the economic crisis, but said the central bank’s independence should not be limited in financial system reforms.
Bernanke defended his record at a stormy Senate Banking Committee hearing on his confirmation for a second term as chairman, and stressed the need for reforms to avert future crises without compromising the Fed’s independence on monetary policy.
“There were mistakes made all around,” Bernanke said when asked if he would change what the Fed had done ahead of the near-meltdown of the financial system.
For bank regulation, he said: “We should have done more. We should have required more capital, more liquidity. We should have required tougher risk management controls.”
Yet the Fed chief said that the extraordinary efforts, including controversial bailouts, helped avert an even bigger catastrophe.
Without some of these actions, there could have been “a meltdown of many of the major banks in the world” and “we could very well be in a depression-like situation with much higher unemployment than today,” Bernanke said. “It’s extraordinarily important to understand that I did not intervene because I care about Wall Street. I am not a Wall Street person, I’m an academic.”
The Fed chief said the crisis calls for “strengthening regulation and strengthening supervision” of the financial system.
Bernanke warned about placing too much political oversight on the Fed, particularly on its role in setting monetary policy.
“Monetary policy, by its very nature, has to look ahead over a longer period of time,” he said.
“There is a very, very strong finding ... which shows that countries that have independent central banks, that make monetary policy without political intervention, have lower inflation, lower interest rates and better performance than those in which the central bank is subject to considerable political control,” he said.
Bernanke faced unusually harsh criticism from some lawmakers frustrated over the deep economic slump and bailouts of big financial firms.
Republican Senator Jim Bunning, a longtime Bernanke critic, told him: “Your Fed has become the creature from Jekyll Island.”
“From monetary policy to regulation, consumer protection, transparency and independence, your time as Fed chairman has been a failure,” Bunning said. “I will do everything I can to stop your nomination and drag out this process as long as I can. We must put an end to your and the Fed’s failure.”
Senator Bernie Sanders, an independent who usually votes with the Democrats and is not a member of the panel, had earlier asked for Bernanke’s nomination to be put on hold.
“The American people want a new direction on Wall Street and at the Fed. They do not want as chairman someone who has been part of the problem,” he said.
The powerful central bank chief is nonetheless expected to win approval from the Banking Committee and the full Senate.
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