Bernanke back on Capitol Hill and hot seat

WASHINGTON -- Federal Reserve Chairman Ben Bernanke faced more tough questions Wednesday about the central bank's extraordinary actions to rescue the U.S.economy and its ability to take on even more responsibility.

Bernanke appeared before the Senate Banking Committee, one day after waging a defense of the Fed's actions before lawmakers in the House.

Last year's taxpayer-financed rescues of insurance giant American International Group and others outraged many ordinary Americans and some lawmakers.

"Why does the Fed deserve more authority" when it failed to spot the current financial crisis before it struck? wondered Sen. Christopher Dodd, a Democrat and chairman of the committee.

Sen. Richard Shelby, a Republican, raised the same concerns about expanding the Fed's duties to police big financial companies, as envisioned by the Obama administration.

Bernanke on Tuesday told the House Financial Services Committee that the administration's proposal would be a "modest reorientation" of the Fed's powers, not a great expansion of them.

On the economy, high unemployment is "the most pressing issue" as the nation struggles to emerge from recession, Bernanke told the Senate panel. The Fed is closely monitoring the troubled commercial real estate market, where defaults are rising. Bernanke said he hoped that lenders would be willing to rework the terms of the loans when borrowers are having problems making payments.

Bernanke's innovative policies have been credited with helping avert a financial catastrophe last year. But critics worry about putting more taxpayer money at risk — and about leaving companies more inclined to take big gambles, confident that the government will support them.

"You promised transparency but haven't delivered," said Sen. Jim Bunning, R-Ky. "You still resist fully opening your books. I understand your concern about the Fed's independence, but you are the one that threw away the independence by acting as an arm of the Treasury."