Bernanke Confirms More Surcharges, Stability Rules; Supports GSE-Reform Initiatives

Although Chairman Bernanke was called to House Financial Services today to discuss monetary policy, the FRB Chairman also made clear that the largest U.S. banks will be subject to surcharges above and beyond the newly-proposed leverage rule (see FSM Report LEVERAGE). Reflecting GOP pressure, Mr. Bernanke also conceded that the Board will define conditions so threatening to financial stability as to justify use of the FRB’s remaining intervention powers post Dodd-Frank. However, Mr. Bernanke did push back against one potential rule, stating that he believes banks have well managed current interest-rate risk. Members of the Committee focused in part on housing finance, with the FRB head making clear he is up to speed on Corker-Warner (see FSM Report GSE126) and concurs with the need for a federal catastrophic backstop – a very different approach to mortgage finance than contemplated in the Hensarling discussion draft to be considered by FinServ tomorrow. This report analyzes the regulatory and housing issues addressed at this session, which precedes a Senate Banking one sure also to go well beyond monetary policy. FedFin will update clients on that session later in the day.

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