Fed strategy is working, Bernanke says
WASHINGTON -- While acknowledging that the Federal Reserve was "extremely uncomfortable" about last year's bailouts of big financial companies, Fed Chairman Ben Bernanke said Friday the central bank's strategy to ease the financial crisis is working.
Bernanke was referring to the Fed's unprecedented decisions last year to step in and financially back JPMorgan Chase's takeover of then-troubled investment house Bear Stearns and throw its first of four financial lifelines to insurance giant American International Group.
In remarks prepared for a Fed conference in Charlotte, Bernanke said the central bank was forced to take action because the collapse of those companies would have dealt a serious blow to the financial system and the national economy.
The situation underscores the need for new powers to allow the government to safely wind down such huge firms, he said. Bernanke and Treasury Secretary Timothy Geithner recently asked Congress for such powers.
Credit provided under those company bailout accounts for only 5% of the Fed's $2 trillion balance sheet. Still, "these operations have been extremely uncomfortable for the Federal Reserve to undertake and were carried out only because no reasonable alternative was available," Bernanke said.
The Fed's radical programs to bust through the financial crisis and spur bank lending to consumers and businesses are helping. Its program to provide financial companies with loans, buy mounds of debt that companies rely on for short-terming financing of payrolls and supplies, and efforts to bolster consumer lending and the mutual funds have eased some credit stresses, he said.
Such efforts by the Fed, along with central banks in other countries, have "significantly reduced funding pressures for financial institutions, helped to reduce rates in bank funding markets and increase overall financial stability," Bernanke said.
Getting banks to boost lending to customers is a key ingredient to any economic turnaround. The Fed chief said he expects to see a "gradual resumption of sustainable economic growth." However, he didn't say when.
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