'Name the too big to fail banks, Mr. Chairman.'
Good highlight video from last week. Runs 2 minutes.
Bernanke is asked to name the banks whose failure could create systemic risk, and he whiffs, repeatedly. Here's the solution from Dallas Fed President Richard Fisher.
After the hearing, Sen. Corker sent Bernanke the following letter regarding the fed's balance sheet, mark-to-market losses and potential insolvency.
Corker Letter to Bernanke
As you know, during your testimony before the Banking Committee today, I asked you about the payment of interest on excess reserves and the selling of bonds in your portfolio as the means to withdraw monetary support once the economy recovers. I made the argument that the Fed could be in a position where it would have to print money to pay interest on excess reserves and to sell securities at a loss. My exact quote was the following:
“You're getting ready, I guess, in a few years as you alluded to when interest rates rise to basically have to print money to sell securities at losses.”
But it seems that we had a miscommunication. In an effort to rectify this, I will ask these questions in a slightly different way:
If interest rates were to rise and your securities portfolio were marked to market, is it not possible that you could be rendered insolvent at least on a balance-sheet basis? And if so, what kind of risk would that present?
What I would ultimately like to understand is the following: do we have a serious policy problem brewing here, or is this simply an optics problem about which we should not be concerned?
I look forward to your response.
From Bloomberg last week:
Here's the solution:
Photo by William Banzai7...