'Name the too big to fail banks, Mr. Chairman.'
Good highlight video from last week. Runs 2 minutes.
Bernanke is asked to name the banks whose failure could create systemic risk, and he whiffs, repeatedly. Here's the solution from Dallas Fed President Richard Fisher.
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After the hearing, Sen. Corker sent Bernanke the following letter regarding the fed's balance sheet, mark-to-market losses and potential insolvency.
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Corker Letter to Bernanke
Mr. Chairman,
As you know, during your testimony before the Banking Committee today, I asked you about the payment of interest on excess reserves and the selling of bonds in your portfolio as the means to withdraw monetary support once the economy recovers. I made the argument that the Fed could be in a position where it would have to print money to pay interest on excess reserves and to sell securities at a loss. My exact quote was the following:
“You're getting ready, I guess, in a few years as you alluded to when interest rates rise to basically have to print money to sell securities at losses.”
But it seems that we had a miscommunication. In an effort to rectify this, I will ask these questions in a slightly different way:
If interest rates were to rise and your securities portfolio were marked to market, is it not possible that you could be rendered insolvent at least on a balance-sheet basis? And if so, what kind of risk would that present?
What I would ultimately like to understand is the following: do we have a serious policy problem brewing here, or is this simply an optics problem about which we should not be concerned?
I look forward to your response.
Sincerely,
Bob Corker
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From Bloomberg last week:
Bernanke Could Lose Half A Trillion On Balance Sheet When Rates Rise
Here's the solution:
Why A Fed President Wants To Break Up The Banks
Photo by William Banzai7...
