Federal Reserve Chairman Ben Bernanke said Tuesday the Federal Reserve will eventually pull out of its emergency lending facilities as credit conditions improve. He also introduced new initiatives to boost the Federal Reserve's transparency.
"We have been encouraged by the responses to these programs, including the reports and evaluations offered by market participants and analysts," he said. "Notably, our lending to financial institutions, together with actions taken by other agencies, has helped to relax the severe liquidity strains experienced by many firms."
Speaking to the House Financial Service Committee Tuesday afternoon, Bernanke said that as conditions improve, the Fed will end its emergency credit programs.
He encouraged Congress to proceed ahead with legislation that addresses the potential for massive financial institutions to fail.
Bernanke addressed the issue of transparency, saying the Federal Reserve will make more information available to the general public, with added explanation and analyses. A website should be up and running within weeks, he said.
The Fed will also review its level of transparency, keeping in mind that the public has a right to know the details of its balance sheet.
The only limitations to information must be "affirmatively justified by clearly articulated criteria for confidentiality, based on factors such as reasonable claims to privacy," he said.
In Q&A, Bernanke said the profits made from the Fed's lending facilities will substantially offset any unlikely losses the central bank might incur through its lending facilities, and that 95% of the central bank's balance sheet is in "extremely safe" assets.
The central banker also told lawmakers that the Fed is not attempting to stimulate the U.S housing market but rather thaw credit conditions so that the free market can quickly adjust.
When asked why the Fed does not reveal the full details of discount window borrowing, Bernanke said there is a stigma for banks that use the Fed's discount window.
On the TARP, Bernanke said that at the time the Treasury began to make capital injections, it was the only way to stabilize the banking system in an emergency situation. Nevertheless, he continues to believe that targeting bad assets is a better way to resolve the crisis, he added, voicing his approval of U.S. Treasury Secretary Timothy Geithner's plans earlier on Tuesday.
By Megan Ainscow
©CEP News Ltd. 2009