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Inside Washington (12/03/2009)
* WASHINGTON (12/4/09)--Federal Reserve Board Chairman Ben Bernanke defended the Fed’s response to the nation’s financial crisis during his reconfirmation hearing as Fed chief. The crisis would have been much worse without strong action from the Fed, Bernanke told the Senate Banking Committee (The Wall Street Journal Dec. 3). The Fed has been trying to learn from the crisis, and if confirmed for a second term, Bernanke said he would work with Congress to improve oversight. The Fed also must be ready for an exit plan for the stimulus pumped into the financial system to counter the recession, he added ... * WASHINGTON (12/4/09)--Financial observers question whether Government Accountability Office (GAO) audits of the Federal Reserve Board would threaten the central bank’s independence (American Banker Dec. 3). Under legislation pushed by Rep. Ron Paul (R-Texas), the Fed would be subject to audits on its operations, including monetary policymaking. The Fed has said if the audits are mandated, investors may lose faith in the central bank. Brian Gardner, KBW Inc. analyst, said a GAO report would have some significance. However, Mark Calabria, director of financial regulation studies at the Cato Institute, said the GAO may not have as much clout as some think. It has no “magic wands to wave,” he said. Markets are concerned that the audits would cause the Fed to use low-interest rate policies that benefit politicians running for office but trigger inflation. Calabria said the Fed already faces tremendous political pressure ... * WASHINGTON (12/4/09)--A regulatory reform report by the Pew Economic Policy Group said the Fed should be stripped of its bank regulatory authority, and a Financial Services Oversight Council should be created to regulate systemic risk. The Fed should still be allowed to collect any information from financial institutions to monitor systemic risk, however. The report also recommended that large financial institutions maintain higher capital standards. Back-up resolution and strengthened bankruptcy processes should be used to help systemically important firms that fail (American Banker Dec. 3). A recent Pew Charitable Trusts study favorably noted credit unions, saying that consumers should consider them when choosing a credit card (News Now Oct. 29) ...

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