Who said C-Span is boring? Ben Bernanke appeared before the Senate Committee today and got in a small feud with Senator Bob Corker, (R-TN) over the dollar, inflation, QE etc. and related issues. Ben Bernanke also got in a small argument with Senator Elizabeth Warren over bank policies, specifically “too big to fail.” Although the debate was not nearly as exciting as Bill Ackman vs. Carl Icahn it was a bit thrilling then a typical Fed Chairman testimony on C-Span. CNBC has some footage of both video segments which are embedded below (transcripts for both videos follow):
Computer generated transcript:
thank you. there’s a vote pending, but there’s a senator from tennessee care to make a brief statement? just one very quick question. and i was interested. i went back to the office, didn’t expect to come back. but listening to the exchange with senator warren and senator vitter reminded me the question with trulo who was in last who you serve with on the fed board. and he had mentioned — i asked him about systemic risk and i know that the fed is obviously a member of the fsoc and your goal is to identify systemic risk and deal with that. and it was much like the answer that you gave to senator warren a minute ago, it’s kind of we’re on this journey. but i would ask this question, is there any entity in our country that if it failed would create systemic risk? and if so, why is that still the case after the creation of dodd/frank? i mean, why haven’t we moved more ickly? why are we taking so long on this journey? and is there an institution that if it failed would pose systemic risk to our country? and if so, would you identify it. the only answer i can give you is that dodd/frank is a complicated bill, many of the rules are not complete — but that piece of it is very complicated. it’s only about eight words. so, that’s not complicated. it’s a directive to you, and you’re a big part of this and you came out a big winner on dodd/frank and i guess i would just ask the question, why would you not go ahead and identify that, and if there’s an entity that is in our nation, if it failed something that poses systemic risk, you would know that, why don’t we go ahead and move to deal with that. well, the fsoc actually has the authority to designate nonbank firms that they view as systemic and they come under the oversight of the fed. let me ask you, if we have firms, though, are we going to — is it your thought that under this power that you’ve been given, is it your thought that we would continue to have firms operating in our country that if they failed, they would pose systemic risk, or are we going to try to mitigate that in some other way? i’d just be curious. the goal of the powers that you gave to the fed and other agencies is to as much as possible eliminate that problem over time. additional steps i think would require congressional action beyond what we have implemented. i don’t think so. i’m going to follow-up with a letter. i thank you for your testimony. sure. i don’t think that’s the case. thank you, again, chairman, bernanke, for your testimony and for being here with us today. this hearing is adjourned.
i also want to say thank you, mr. chairman, this has been my chance to say in public how grateful i am for your help in setting up the consumer agency and how helpful all the people were at the fed during the time of transition of the consumer functions, so thank you very much. i’d like to go to the question about too big to fail, that we haven’t gotten rid of it yet. and so now we have a double problem, and that is, that the big banks, big at the time that they were bailed out the first time, have gotten bigger and at the same time that investors believe with too big to fail out there, that it’s safer to put your money into the big ban and not the little banks, in effect creating an insurance policy for the big banks that the government is creating this insurance policy, not there for the small banks. and now some economists, including an economist at the imf have started to document exactly how much that subsidy is worth. last week bloomberg did the math on it and came up with a number $83 billion that the big banks get in what is essentially a free insurance policy. they borrow cheaper than the small banks do. so, i understand that we’re all trying to get to the end of too big to fail, but my question, mr. chairman, is until we do, should those biggest financial institutions be repaying the american taxpayer that $83 billion subsidy that they’re getting? well, the subsidy is coming because of market expectations that the government would bail out these firms if they failed. those expectations are incorrect. we have an orderly liquidation authority. even in the crisis we — in the cases of aig, for example, we wiped out the sharehrs. excuse me, though, mr. chairman, you did not wipe out the shareholders of the largest financial institutions, did you? the big banks? because we didn’t have the tools, now we do. now we have the tools. 83 billion says that whatever you’re saying, mr. chairman, $83 billion says that they’re really will be a bailout for the largest financial institutions if they fail. well, that’s the expectations of markets, but that doesn’t mean we have to it. what i think we have to do is solve the problem, senator, i think we are really in agreement on this. too big to fail is not absolute. there are credit default swaps say there is some probability of failure. moody’s and others have downgraded these firms. they’ve taken down some of their government support ratings, as you know, but we have a lot more to do, i agree. and i think that’s a good debate to have, but we’re in complete agreement that we need to stop too big to fail. but i don’t understand, it is working like an insurance policy. ordinary folks pay for homeowner’s insurance, ordinary folks pay for car insurance, and these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year. simply because people believe that the government would step in and bail them out, and i’m just saying if they’re getting it, why shouldn’t they pay for it. i think we should get rid of it. well, all right, i’ll ask the other question. you were here in july and you that you were — you commended dodd/frank for providing a blueprint to get rid of too big to fail. we’ve now understood this problem for nearly five years. so, when are we going to get rid of too big to fail? well, some of the — you know, as we’ve been discussing, you know, some of these rules take time to develop. do ordinarily liquidation authority, we’ve made a lot of progress on that. we’ve got living wills. i think we’re moving in the right direction. if more steps are needed, then obviously congress can discuss those. but we have a plan and i think we’re moving in the rit direction. any idea when we’ll arrive in the right direction? it’s not a zero one kind of thing. over time you’ll see increasing expectations that the institutions can fail. i would make another prediction, andctions are always dangerous, that the benefits of being large are going to be ing to decline over time and some will decline in size because they’re not getting the benefits that they predict. i read your earlier ttimony on this. so far they are getting $83 billion. it’s one study, senator. we’ll go back and look at it if there’s a problem. but does it worry you? of course. i think it’s very important. and we’re putting a lot of effort into this. it’s a problem that we’ve had for a very long time and i don’t think we can solve it immediately, but i assure you that as somebody who spent a lot of late nights trying to deal with these problems and the crisis, i would very much like to have the confidence that we could close down a large institution without causing damage to the rest of the economy. fair enough. i know we’re both trying to go in the same direction, i’m just pointing out that in all that space in between, what’s happening is that the big banks are getting a terrific break, and the little banks are just getting smashed on this. they’re not getting thatind of break. and that has long-term impact for all of the financial system. i agree with you 100%.