US Federal Reserve Chairman Ben Bernanke vowed to defend the independence of the central bank, work harder to explain its decisions to the public and step up supervision of the nation’s banks during his second term.
“In the interest of maintaining public confidence and promoting economic and financial stability, we must continue to protect our independence,” the 56-year-old former Princeton University professor told Fed employees assembled in the atrium of the central bank’s Washington headquarters after he was sworn in for another four-year term yesterday.
Bernanke was confirmed last month by a Senate vote of 70 to 30, the most opposition since the chamber started voting on Fed chiefs in 1978. Lawmakers are considering legislation to remove a shield from congressional audits of monetary policy and to strip the Fed of bank-supervision powers, measures that Bernanke opposes.
PHOTO: REUTERS
Bernanke said independence is worth defending because it allows the central bank to make monetary policy “in the longer term economic interests of the American people, rather than in the service of short-term political imperatives.”
At the same time, that autonomy “brings with it fundamental obligations of transparency, responsiveness and accountability.”
He said the bank would seek to increase the already “voluminous” information it makes public.
“We will continue work with the Congress to ensure maximum transparency of America’s central bank, without compromising our ability to conduct policy in the public interest,” he said, according to a text of his speech provided by the Fed.
The House in December voted to approve a proposal by Representative Ron Paul, a Republican from Texas, to open the Fed’s interest-rate decisions to audits by congressional investigators.
The Fed chairman said the central bank must also revise its approach to banking supervision in light of the lessons of the most severe financial crisis since the 1930s, which prompted the central bank to participate in rescues of firms including New York-based insurer American International Group Inc and Citigroup Inc.
“The crisis revealed weaknesses and gaps in the regulation and supervision of financial institutions and financial markets,” Bernanke said. “We must continue to do all that can be done to ensure that our economy is never again devastated by a financial collapse.”
In the Senate, Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, is proposing a measure to strip the Fed and other agencies of banking-supervision authority and to consolidate that power in a single new regulator. Dodd has called the Fed’s oversight record leading up to the crisis “abysmal.”
During his second term, Bernanke will also have to begin reversing a record monetary expansion without undercutting the recovery from the recession. While the economy grew at the fastest pace in six years in the fourth quarter, economists project the unemployment rate will average 10 percent this year.
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