There are many important events happening this week in our nation’s capitol but one of the most critical is the hearing of the Senate Banking Committee regarding the confirmation of Ben Bernanke. (Thursday, December 3, 2009, 10:00 AM)
The Federal Reserve has undertaken an extraordinary expansion of their mandate as lender of last resort by massively expanding their balance sheet and have struggled to maintain full employment in response to the financial crisis of 2007-2009.
There now remain several large efforts for the central bank.
There lies ahead the unwinding of the substantial liquidity injected into the monetary system, the reform of banking regulation, managing the “too big to fail” institutions, the strengthening of the payment and settlement systems, working constructively with the Congress to enhance transparency and independence and guiding the nation back to full employment.
Members of the Senate Banking Committee are the front line in helping right the direction of the US economy. History will record this confirmation hearing as one of the most important in our nation’s history.
Here is some background on the efforts to reform the Federal Reserve from Riski.
I’ve organized some questions for staffers to consider when preparing for the hearing.
Economic conditions:
- In the absence of bank lending, does Chairman Bernanke support the regional Federal Reserve Banks lending to small and medium size businesses?
- Is there any need to legislatively modify the Humphrey-Hawkins Act in light of lessons learned from the financial crisis?
- What are the views of the Federal Reserve on the current US debt limit?
- What is the Federal Reserve’s view on the recovery?
Global issues:
- What are Chairman Bernanke’s views on the Financial Stability Board’s recommendation to the G20?
- How useful will the IMF “special drawing rights” program be to the United States?
- Does Chairman Bernanke have a contingency plan for when dollar carry trades are reversed?
- What are Chairman Bernanke’s views on the impact of $600 trillion of derivatives in a G20 GDP of $45 trillion?
- Does the Chairman have any views on the efficacy of a Tobin tax? (background)
- Is the US banking industry overly exposed to a possible “global contagion?
- The Financial Stability Board has reportedly published a list of 30 globally systemic institutions which includes Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan Chase, and Morgan Stanley. Will the Federal Reserve be sharing oversight of these banks with the FSB?
- Is there a danger of global “asset bubbles” developing and what is the role of the Federal Reserve in managing global liquidity?
- Citibank is reported to have loaned Dubai $8 billion. Will this effect Citi’s capital base and the US guarantee?
Fed independence:
- How does the Federal Reserve view current legislation in relation to its independence?
- Federal Reserve independence is very important… how would the Chairman describe the influence of various stakeholders such as members of Congress, the President and his advisors, the staff of other central banks?
- What is the value of input from Wall Street and commercial banks that serve on the Boards and Advisory Committees of the Fed and the Regional Fed Banks?
- Describe the feedback process from the primary dealers in illuminating the activity of global financial markets.
Conflicts of interest:
- Vice Chairman Kohn has been leading an effort to review transparency at the Federal Reserve how is that process going?
- Do you believe there is a conflict between the Federal Reserve and the banks which it regulates and also serves as primary dealers? How is this conflict managed?
- Is there a conflict in the ownership of the regional Federal Reserve Banks by the banks?
Federal Reserve’s balance sheet and assets
- What are the Chairman’s view on the growth of the Fed’s assets, the forecast and its implications for the US and the global economy?
- The Federal Reserve has taken varied approaches to the use of credit ratings. Has this process given more confidence about the value of collateral accepted for lending?
Too big to fail:
- Please comment on the appropriate size of banks given the dual banking system?
- Should ”too big to fail” be allowed to exist and what about their impact on Main Street and local banks.
- What is the Chairman’s view of proprietary trading being done in depository institutions?
- Does the Chairman and his staff understand how CDO’s and counterparty hedge contracts work, can he explain it?
- Please share your views about the shadow banking system and its adverse implications on “regulated” banking, the financial markets and the economy.
- What are the Chairman’s views on systemic regulation?
Banking regulation:
- Current proposals would remove bank regulation from the Federal Reserve how would this effect setting monetary policy?
- What is the best way to manage the relationship between the Fed, the banking - insurance - trading industries and “all” regulators?
- How will the Federal Reserve share information on systemic and financial market issues?
- Has the Federal Reserve considered using standards to make regulation and information sharing more efficient and useful?
- Is the Federal Reserve monitoring the current conflicts between the bond insurers, Wall Street banks and the state insurance regulators? (re MBIA , Ambac and FGIC)
- Is it likely that the Fed will get these parties, banking regulators and the Treasury in a room to clean up the conflicts which are the same as the problems between AIG and their CDS counterparties?
- How much progress have global regulators made in requiring banks to take “off balance sheet” vehicles back on bank books?
- When Goldman Sachs and Morgan Stanley were granted bank holding company charters on emergency basis questions were raised about the due diligence of the process. What procedures are in place to restrict “charter shopping” by financial institutions?
- Should the leverage level of banks be fixed in legislation like the Spier amendment? And how are banks treating their derivatives exposure in the capital setting?
- The stress tests conducted in the spring assumed lower levels of unemployment than the nation is now experiencing. Have Federal Reserve bank regulators revised the stress tests and capital adequacy requirements?
Financial crisis:
- Will the Federal Reserve be releasing the minutes of the meetings between the Treasury, the Fed and the banks on AIG, Bear Stearns and Lehman Brothers bailouts?
- What are the prospects of taxpayers recouping the support they provided to the financial system?
- Section 13-3 grants the Fed emergency lender authority. How is this lending being audited?
- SIGTARP says that the Fed has put approx. $ 7 trillion of guarantees in place. How is the Fed monitoring these guarantees? And how is this coordinated with bank oversight?
- When did the Federal Reserve recognize the scope of problems in the banking system related to the subprime lending?
- What are the lessons learned?
Consumer protection:
- How will the Federal Reserve align the interests of the banking industry with those of Main Street?
- What are the Chairman’s views on the proposed Consumer Financial Protection Agency?
General questions:
- The Federal Reserve has been overseeing the confirmation and settlement of swaps in coordination with 16 Wall Street banks, how is the Fed coordinating these efforts with the SEC and CFTC?
- How did the exercise to conduct reverse repo with money market funds come out? (NY Fed statement)
- What does Chairman Bernanke like about his job most and least?
*** Senate Banking Committee hearing link…
*** Reuters overview of proposed legislative changes for the Federal Reserve…
*** Riski on reform of the Federal Reserve…