fed // Current

added
16 days ago

Fed Chief Works to Secure More Power for Agency

WASHINGTON — During the debate over financial regulation, the Federal Reserve chairman, Ben S. Bernanke, has been surprisingly quiet. But behind the scenes, he has been a forceful proponent of giving the Fed more power, both defending his management of the economic crisis and arguing that more authority would help the agency act more decisively to reduce the chances of a recurrence, according to interviews with lawmakers and officials from the Fed, the Treasury and the White House.

Despite criticism by some lawmakers that the Fed failed to anticipate the problems that led to the crisis, Mr. Bernanke has told associates that such critics fail to recognize the extraordinary actions taken by the central bank over the last year.

Mr. Bernanke believes the Fed’s actions have played a major role in averting a possible second Great Depression, according to government officials who know his thinking. Those steps, the Fed chairman has told these people, demonstrate that the agency is up to the larger task assigned to it by the Obama administration.

Mr. Bernanke has one important champion — President Obama. On Monday, the president reinforced his preference for an enlarged role for the Fed in an interview on the “CBS Early Show.” The government should have an overseer that “is accountable and clear when it comes to these large systemic firms that could potentially bring down the entire financial system,” the president said, adding that “The Fed has the expertise and the credibility.”

He disputed the criticism in Congress that lapses at the Fed contributed to the crisis.

“It wasn’t the Fed where regulations broke down here,” the president said.

But the president and Mr. Bernanke do not see eye-to-eye over whether to create a Consumer Financial Protection Agency, part of which would be carved out of the Fed’s existing jurisdiction over mortgages and credit cards.

Breaking ranks with the administration, Mr. Bernanke is expected to tell Congress that the Fed would prefer to keep the responsibility for consumer lending. He is also expected to promise a stronger emphasis on consumer debt issues in the future.

Mr. Bernanke’s surrogate in the debate has been the Treasury secretary, Timothy F. Geithner, who in Congressional testimony, speeches and interviews has praised the Federal Reserve as an agency that performed better than other regulators. (Mr. Geithner’s views may also have reflected his pedigree. He joined the administration after serving five years as president of the New York Federal Reserve, where he worked closely with Mr. Bernanke.)

Mr. Bernanke has been reluctant to get involved in the political debate, but has argued to associates and lawmakers that the often-mentioned alternative of a council supervising the largest firms would not be nimble or accountable enough.

He also has said that the plan is not a radical departure from the Fed’s current role. The Fed is already the umbrella supervisor of virtually all of Wall Street’s largest institutions, and the Obama plan would add only a handful of new companies to the Fed’s oversight list. The Fed so far has not specified which companies it would add to its purview, but once it decides, it is expected to make the list public.

The biggest impact, government officials said, is not in the number of institutions that the Fed now regulates, but in how it regulates them. It will have to go beyond measuring the financial safety of institutions to examining their connections to other firms and markets, and the dangers those connections could pose.

By possibly requiring the largest institutions to hold more capital against losses or to reduce the amount of debt they carry, for example, the Fed could make firms less profitable and less competitive with their smaller rivals. That in turn could prompt some of the largest institutions to decide to shrink, either by borrowing and lending less, or selling off units.WASHINGTON — During the debate over financial regulation, the Federal Reserve chairman, Ben S. Bernanke, has been... more