Fed chairman blasts regulatory reform bills under consideration

Federal Reserve Board Chairman Ben Bernanke assailed legislative proposals being considered by Congress, saying the bills could prevent the Fed from doing its job.

Writing in a Washington Post commentary Sunday, Bernanke argued that financial regulatory reform proposals in both the Senate and the House could lead to greater financial instability.

Bernanke acknowledged that Congress is still hashing out the "complex" matter of regulatory reform. "I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions," he wrote. "...The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution's ability to foster financial stability and to promote economic recovery without inflation."

The Fed chairman notes that the legislative efforts are in response to public anger about government bailouts of troubled firms, "as distasteful and unfair as some undoubtedly were," and defended such moves as "unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression."

Bernanke acknowledges that the Fed could have done more to "constrain excessive risk-taking in the financial sector in the period leading up to the crisis," and said the Fed has taken steps to prevent such mistakes in the future.

The chairman also defended the Fed's transparency in the face of calls for a thorough audit of the board, saying, "independent does not mean unaccountable."

"Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption," Bernanke wrote. "The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation."

Bernanke's defense of Fed authority comes as the chairman faces the Senate Banking Committee on Thursday for a hearing on his nomination to a second term.

The commentary also comes after the chairman of that the Banking Committee, Sen. Chris Dodd (D-Conn.), introduced legislation this month that would create a single bank regulator, stripping oversight from the Fed.

On Sunday, two senators gave a mixed review of Bernanke and the Fed’s performance. On ABC’s "This Week," Sen. Lindsey Graham (R-S.C.) credited Bernanke with making "decisive decisions" that helped prevent an even broader economic crisis, although he said he wanted a more accountable and transparent Fed.

But Sen. Bernie Sanders (I-Vt.) said he "absolutely would not vote" to reappoint Bernanke, because the Fed chairman didn’t do enough to reduce risk in the financial system.

Jim Snyder contributed to this report

This story was updated at 10:40 a.m.