The Joint Economic Committee (JEC) held a hearing today on the outlook for the U.S. economy. JEC Chairman Maloney’s written statement echoed many of the same sentiments she expressed during last week’s hearing. She noted that the JEC was “eagerly awaiting” the results of the “stress test” of the nation’s 19 largest bank holding companies. She also commended the witness, Ben Bernanke, Chairman of the Federal Reserve, for his leadership in (i) implementing new rules to prevent unfair and deceptive practices related to credit cards; and (ii) for establishing greater transparency at the Federal Reserve.
In his testimony, Chairman Bernanke discussed recent economic developments. Although he expects that the labor market will “likely see further sizable job losses and increased unemployment” over the next few months, he noted that “recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing.” In response to a question from Chairman Maloney about whether there was “any good news” for the economy, Chairman Bernanke was cautiously optimistic that, as the decline in inventory levels led to an increase in production and household demand stabilized, the economy would experience “positive growth by the end of the year.”
Chairman Bernanke also described the efforts taken to restore stability to the financial system, and discussed the “stress test” performed by the federal bank regulatory agencies on the 19 largest bank holding companies under the Capital Assistance Program. He explained that the delay in the release of stress test results was required by (i) the expansive nature of the examination, (ii) the opportunity given to the companies to provide additional explanation and correct misstatements or communication errors, and (iii) time spent by the agencies to ensure that the results of the examination were as accurate as possible.
In responding to a question about the concept of “too big to fail,” Chairman Bernanke stated that “too big to fail” was not a policy or a doctrine but rather a problem. He stated that the problem resulted from a lack of legal authority to engage in the orderly resolution of large institutions and holding companies that were not banks. Under current law, he continued, there is no resolution regime to safely unwind a large company in a manner analogous to the FDIC receivership process used for banks.