NEW YORK — The chairman of the Federal Reserve is concerned that congressional efforts at financial reform could weaken the central bank’s ability to handle future crises and might politicize monetary policy.
Fed Chairman Ben Bernanke made the comments in an Op-Ed piece to appear today in The Washington Post, five days before the Senate Banking Committee holds a hearing on his nomination for a second term. His current four-year term expires Jan. 31.
Bernanke wrote that the nation is challenged to design a financial oversight system that will “embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause.”
But two proposals being considered “are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States.”
The first item in question is a bill before the Senate that would strip the Fed of its bank regulation authority and give the Senate a role in selecting the 12 regional Federal Reserve bank presidents, proposed by Banking Committee chairman Chris Dodd, D-Conn.
Dodd says his measure would return the Fed to its core mission of setting monetary policy, claiming it proved itself “an abysmal failure” by not cracking down on risky lending practices that led to the financial meltdown.
Bernanke countered that the Fed played “a major part in arresting the crisis.”
The second piece of legislation Bernanke comments on is an amendment from Rep. Ron Paul, R-Texas, in a House financial regulatory bill that would repeal a 1978 ban on congressional audits of Fed interest- rate decisions.
Paul maintains the repeal would bring more transparency and accountability, and notes it contains language that states it should not be construed as interference in or dictation of monetary policy by Congress.
Bernanke said the Fed’s ability to set interest rates and provide stimulus through lending and asset-purchase programs depends upon being able to operate independently of political influence.
The Fed chairman recognized that the proposals are in part born of public anger over the financial crisis and the rescues of big financial firms.
