While acknowledging that the Federal Reserve was “extremely uncomfortable” about last year’s bailouts of big financial companies, Fed Chairman Ben Bernanke says the central bank’s strategy to ease the financial crisis is working.
Bernanke was referring to the Fed’s unprecedented decisions last year to step in and financially back JPMorgan Chase & Co.’s takeover of then-troubled investment house Bear Stearns and throw its first of four financial lifelines to insurance giant American International Group Inc.
In remarks during a Fed conference today in Charlotte, N.C., Bernanke sys the central bank was forced to take action because the collapse of those companies would have dealt a serious blow to the financial system and the national economy.
The situation underscores the need for new powers to allow the government to safely wind down such huge firms, he says. Bernanke and Treasury Secretary Timothy Geithner recently asked Congress for such powers.
Since the financial crisis erupted in 2007, the Fed’s balance sheet — its assets and liabilities — has more than doubled to $2 trillion from $870 billion. Credit provided under those company bailouts accounts for only 5% of the Fed’s current balance sheet, Bernanke says.
Still, “these operations have been extremely uncomfortable for the Federal Reserve to undertake and were carried out only because no reasonable alternative was available,” he says.
