Friday, March 19, 2010

Hearing on the link between Fed Policy and Bank Supervision (Frank Hung, Intern)

We attended the hearing held by House Financial Services Committee on Wednesday March 17, 2010. Among the speakers:

The Honorable Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve

The Honorable Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board, Former Chairman of the Federal Reserve

Their testimony focused on interest rates and government guarantees, such as those granted Fannie Mae and Freddie Mac. One Congressman asked if holding rates too low for too long causes inflation? Bernanke indicated he is watching economic trends closely will move rates up or down in order to avoid future economic problems. He stated that arbitrage opportunities still happened and that, based on current reports and research, demand is still lower than the full employment level. He noted that low interest rates can stimulate consumer expenditures and alleviate the unemployment problem.

He also stated that the Fed cooperates with other regulatory agencies in supervising the banking system since some of the banking organizations are large and complex. Bernanke indicated that the Fed will do its best to address systemic safety issues for the whole financial system by rigidly supervising high leverage or low credit companies.

The hearing also covered problems with Fannie Mae and Freddie Mac. Bernanke said, while the Fed understands the problem and has already started to address it, results will not be seen anytime soon. Time will tell what they did and how is it works.

In conclusion, there was not much useful or new information. We note there was no discussion concerning the supervision and regulation of a company like Goldman Sachs.