Federal Reserve Bank Leadership Remains Intact Despite the Collapse of the Financial Markets

President Obama nominated Ben S. Bernanke to a second four-year term as chairman of the Federal Reserve Bank, which is the central bank of the United States. Chairman Bernanke has led the biggest expansion of the Federal Reserve Bank’s power in its 95-year history to handle the current financial crisis which many claim is the worst economic crisis since the Great Depression.

The financial industry is thrilled with the decision that Bernanke will remain as Chairman of the Federal Reserve. Morgan Stanley’s Richard Berner who serves as head of Global Economics stated that “it’s not just that he’s done a great job of dealing creatively with the financial crisis but that he brings certainty.” The financial industry applauded President Obama for maintaining the stability of the Federal Reserve by nominating Bernanke for a second term. However, there are many in Congress that are displeased with Bernanke’s decisions especially in terms of the independence that Bernanke has displayed. Bernanke decided to cut the main interest rate almost to zero, he decided to funnel $1 trillion into the crippling banking system and he decided to rescue Bear Stearns Cos. and American International Group Inc. from collapse, although he permitted Lehman Brothers to collapse.

Many members of Congress believe that Bernanke overstepped his authority as Chairman of the Federal Reserve and used “emergency powers” to deviate from sound monetary policy. Bernanke was also criticized as too slow to respond to the housing crisis and inaccurately referred to the housing crisis as “contained” before reversing course in August 2007 and cutting interest rates. As a result, there is pending legislation in the House which would subject the Federal Reserve’s monetary policy to audits by the Government Accountability Office. If the legislation is adopted, the Federal Reserve would need the Treasury Department’s approval before invoking the emergency powers that Bernanke used to coordinate the financial bailouts and to make loans to non-bank financial institutions.

President Obama believes that Bernanke has provided extraordinary leadership during the most difficult financial crisis that America has faced since the 1930s. The President further believes that Bernanke is the person to guide America through renewed growth in the years to come. Recently, at the Federal Reserve Bank’s annual symposium, Bernanke stated that “prospects for a return to growth in the near term appear good.” However, “we have an enormous amount of work to do.”