As is usual when the Federal Reserve Chairman comes before Congress on monetary policy, Ben Bernanke took questions on a wide array of topics at today’s Senate Banking hearing. Although fiscal policy was of course a major preoccupation, senators on both sides of the aisle grilled the chairman on whether banks remain too big to fail and/or to jail. Mr. Bernanke argued that TBTF is being phased out in the U.S. as the Dodd-Frank framework is being built out. Under questioning from Sen. Vitter (R-LA), he did agree to consider additional measures, likely signaling some willingness to discuss the short-term debt limits advocated by Gov. Tarullo and others at the central bank. Sen. Bob Corker (R-TN) for the first time took on TBTF in earnest, asking if any U.S. financial institutions pose systemic risk. Mr. Bernanke sought to dodge this by arguing that reform is under way and, when pressed, that he lacks statutory authority now to break up big banks or otherwise eliminate their systemic potential. Like his colleagues pushing on TBTF, Sen. Corker was unpersuaded. This bipartisan focus reaffirms FedFin’s forecast (see Client Report 2013-2) that Republicans and Democrats will join together this year to demand tougher big-BHC rules. This report analyzes the Senate session, which also led Mr. Bernanke to put out a more pessimistic forecast for U.S. Basel III capital rules and indicate potential variances in the U.S. approach to liquidity.

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