Washington - Federal Reserve chairperson Ben Bernanke on Thursday admitted "mistakes" leading up to the economic crisis but argued the central bank's independence should not be limited in financial system reforms.
Bernanke defended his record at a stormy senate banking committee hearing on his confirmation for a second term as chairperson, and stressed the need for reforms to avert future crises without compromising the Fed's independence on monetary policy.
"There were mistakes made all around," Bernanke said when asked if he would change what the Fed had done ahead of the near-meltdown of the financial system.
For bank regulation, he said, "We should have done more. We should have required more capital, more liquidity. We should have required tougher risk management controls."
Yet the Fed chief argued that the extraordinary efforts, including controversial bailouts, helped avert an even bigger catastrophe.
Without some of these actions, there could have been "a meltdown of many of the major banks in the world" and "we could very well be in a depression-like situation with much higher unemployment than today," Bernanke said.
"It's extraordinarily important to understand that I did not intervene because I care about Wall Street. I am not a Wall Street person, I'm an academic."
The Labour Department's November jobs report, to be released Friday, was expected to show unemployment holding steady at 10.2% - a 26-year high - for the second month in a row.
Bernanke's hearing opened after a lawmaker used a senate prerogative to place a "hold" on the nomination, which could delay his confirmation, and other lawmakers offered blunt criticism of the powerful Fed chief.
"I did not anticipate a crisis of this magnitude and severity," Bernanke told the panel.
"But given that it happened, many of the banks... were not adequately prepared in terms of their reserves, in terms of their liquidity. That is a mistake we won't make again."
The Fed chief said the crisis calls for "strengthening regulation and strengthening supervision" of the financial system.
But Bernanke warned about placing too much political oversight on the Fed, particularly on its role in setting monetary policy.
"Monetary policy, by its very nature, has to look ahead over a longer period of time," he said.
"There is a very, very strong finding... which shows that countries that have independent central banks, that make monetary policy without political intervention, have lower inflation, lower interest rates and better performance than those in which the central bank is subject to considerable political control."
Bernanke faced unusually harsh criticism from some lawmakers frustrated over the deep economic slump and bailouts of big financial firms.
Senator Jim Bunning, a longtime Bernanke critic, told him: "Your Fed has become the creature from Jekyll Island.
"From monetary policy to regulation, consumer protection, transparency and independence, your time as Fed chairman has been a failure," Bunning said.
"I will do everything I can to stop your nomination and drag out this process as long as I can. We must put an end to your and the Fed's failure."
Senator Bernie Sanders, an independent who usually votes with the Democrats and is not a member of the panel, had earlier asked for Bernanke's nomination to be on hold.
"The American people want a new direction on Wall Street and at the Fed. They do not want as chairman someone who has been part of the problem," he said.
The powerful central bank chief is nonetheless expected to win approval from the banking committee and the full senate.
"Bernanke's re-nomination is still very likely, but the Fed faces major threats from proposed legislation that would have a major impact on the mandate and scope of the Federal Reserve - threats that Bernanke will have to fend off with considerable forcefulness," said IHS Global Insight economist Brian Bethune.
The committee chairperson, senator Chris Dodd, said Bernanke merits a second term.
"Under your leadership, Mr Chairman, the Federal Reserve has taken extraordinary actions to right the economy," Dodd said.
"These efforts have played, in my view, a very significant role in arresting the financial crisis... you and the Federal Reserve deserve, in my view, praise for your acumen and gratitude (for preventing) a far worse outcome that we might have otherwise seen."
- AFP