Fed Chairman Bernanke Testifies on TARP Performance and Credit Turmoil

Written by: Ken Sweet FOXBusiness

In his testimony in front of the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke said Tuesday that the central bank’s new lending programs have eased some of the extensive problems in the credit markets, but banks should not be expected to immediately start lending.
The testimony is part of the Congress’ inquiry into the performance of the $700 billion TARP program and sharp decrease in lending since markets froze late last year. Chief executives of major financial houses, including Goldman Sachs (GS: 94.7301, 4.1201, 4.55%), Morgan Stanley (MS: 22.94, 1.84, 8.72%), Bank of America (BAC: 6.08, 0.51, 9.16%) and Citigroup (C: 3.65, 0.25, 7.35%), will testify on Wednesday.
In his testimony, Bernanke the Federal Reserve has been “encouraged” by the response of these newly created programs, including facilities to purchase commercial paper, asset-backed securities, credit card securities and student loans, and said the programs could be expanded to additional classes of investments if warranted.
“The Federal Reserve has responded forcefully to the financial and economic crisis since its emergence in the summer of 2007,” Bernanke said.
Since the passage of the $700 billion TARP rescue program, there has been heightened criticism from both Washington and the general public that banks are not lending enough to keeps the economy going. Consumer credit levels have declined month over month, according to the Fed, and anecdotal evidence has come from small businesses that lending is not available.
Bernanke said that despite many banks’ access to these additional programs, “concerns about capital, asset quality, and credit risk continue to limit the willingness of many intermediaries to extend credit.”
Despite the banks’ alleged unwillingness to lend and the decline in the stock markets, Bernanke said that certain parts of the credit markets -- including mortgage rates and agency debt -- have improved. Money market funds have begun to see “modest inflows” since the government instituted stabilization measures in September.
Bernanke continued to emphasize that the central bank has additional tools available at its disposal now that its key lending rate is now at its “effective floor.”