WASHINGTON, Nov 27 (Reuters) - U.S. Federal Reserve
Chairman Ben Bernanke said on Friday congressional proposals to
audit the Fed and strip it of regulatory powers as part of
post-crisis reforms could damage prospects for economic and
financial health in the future.
"These measures 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," Bernanke wrote in a column
posted on the Washington Post's website.
The rare newspaper column by a Fed chairman comes shortly
before Bernanke testifies before a Senate panel on his
renomination to serve a second four-year term at the helm of
the central bank and answers a series of steps on Capitol Hill
that could diminish the central bank's role.
Lawmakers are angry with the Fed over its emergency
bailouts of major financial firms and its failure to prevent
the contagion of mortgage delinquencies that crashed the
financial system. A proposal to audit the Fed's monetary policy
deliberations won a committee vote recently over the objections
of House Financial Services Committee Chairman Barney Frank.
Frank's Senate counterpart, Banking Committee Chairman
Christopher Dodd, is himself the author of a proposal to
consign the Fed solely to making decisions about setting
benchmark interest rates.
Bernanke, in his column, conceded the Fed had missed some
of the riskiest behavior in the lead up to the crisis. But he
said the Fed had helped avoid an even more damaging economic
meltdown and has stepped up its policing of the financial
system.
"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," he said.
Bernanke acknowledged that lawmakers are responding to
public anger over the government's response to the turmoil.
"The Federal Reserve, like other regulators around the
world, did not do all that it could have to constrain excessive
risk-taking in the financial sector in the period leading up to
the crisis," he said.
However, the central bank has moved "aggressively" to fix
the problems, Bernanke said. The Fed's knowledge of complex
financial institutions is invaluable in supervising them, he
said.
The Fed's ability to slash interest rates to combat a
recession without fueling inflation depends on its political
independence he said. Allowing audits of its monetary policy --
as proposed legislation would do -- would increase the
perceived influence of Congress on interest rate decisions, he
said.
That, in turn "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 wrote.
Frank has said the audit provision is likely to be
revisited as legislation winds through both houses of
Congress.
Dodd has said his proposal is a starting point for debate.
(Reporting by Mark Felsenthal; Editing Bernard Orr)
((mark.felsenthal@thomsonreuters.com; +1 202 898 8329; Reuters
Messaging: mark.felsenthal.reuters.com@reuters.net))
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