Bernanke Defends Fed From Congressional Critics

Oct. 1, 2009— -- The Federal Reserve can be trusted with protecting consumers and overseeing massive companies whose collapse could pose a risk to the overall economy, the central bank's chief Ben Bernanke said Thursday.

In his opening statement at a hearing of the House Financial Services committee, Bernanke told lawmakers that the Fed is "well suited" to supervise large, interconnected firms. As part of sweeping financial regulatory reform measures currently under discussion in Congress, the Obama administration has proposed that the Fed regulate these firms in an effort to avoid the government having to bail out so-called "too big to fail" companies as has occurred during the current crisis.

"There's nobody more sick and tired of bailouts than me," Bernanke said.

"I do not in any way support too-big-to-fail," he emphasized. "I think it's a huge problem. I think whatever we do must address that problem. Big companies must be allowed to fail, but they must be allowed to fail safety, so that they don't bring down the system."

While the administration has proposed boosting the powers of the Fed with the resolution authority, they also want to reduce the central bank's powers on issues of consumer protections. The administration wants to create a Consumer Financial Protection Agency to handle these matters.

Last Wednesday the panel's chairman Barney Frank, D-Mass., released a "report card" on the Fed's record in consumer affairs, denouncing the central bank's "inattention and inaction" and alleging that "their motivation to protect consumers has been driven more by congressional pressure rather than a sense of duty to protect the American public."

"I certainly concede that until recently we have not done what we should have done in this area," Bernanke acknowledged, before adding, "I think we are very competent and we have the skills and the mix of talent and experience to do a good job here and I think the issue is essentially is the confidence that Congress has in our focus going forward."