Bernanke clears hurdle for second term
Friday, December 18, 2009
Ben S. Bernanke cleared a key hurdle Thursday to being confirmed for a second term as Federal Reserve chairman, but the discussion and vote by a Senate committee suggested that confirmation is not a foregone conclusion.
The banking committee voted 16 to 7 to send Bernanke's nomination for another four-year term to the full Senate when his current one expires Jan. 31. While it still appears likely that Bernanke will be confirmed, the tense debate foreshadowed what could be the most controversial confirmation of a Fed chairman since at least the early 1980s, when Paul Volcker was reappointed during a deep recession.
The majority of senators argued that Bernanke deserves reappointment for his aggressive actions to contain the financial crisis and prevent an even deeper economic downturn.
But many of the votes in Bernanke's favor -- which came from four of 10 Republicans and 12 of 13 Democrats -- were accompanied by significant misgivings about the weak economy and failures by the Fed that contributed to the financial crisis. Some senators who voted to move the nomination forward did not commit to voting for his confirmation on the Senate floor.
Time could be Bernanke's enemy. The Senate is scheduled to reconvene after a holiday recess on Jan. 19, and banking committee Chairman Christopher J. Dodd (D-Conn.) expects the body will only then take up Bernanke's confirmation. That will leave just nine business days for the Senate to act before Bernanke's term expires. Sen. Bernard Sanders (I-Vt.) has said he will put a hold on the nomination, a procedural step that could delay a vote and means that Bernanke would need 60 votes to remain chairman.
"I suspect that at the end of the day, there will be enough votes to confirm," said Brian Gardner, senior vice president for Washington research at Keefe, Bruyette & Woods. But he noted that more than a month will pass between now and a final vote, "and I think we've all watched enough things in Washington to know that circumstances can change."
Uncertainty about the Fed chairmanship would be bad for financial markets, Gardner added. "There are plenty of people in the markets who have criticized Bernanke, but investors would prefer to see a steady hand going forward, and a lack of clarity would probably hurt the dollar and a wide range of markets," Gardner said.
President Obama announced his nomination of Bernanke to a second term in August, but the banking committee, which was preoccupied with proposals to overhaul financial regulations, did not hold its confirmation hearing until Dec. 3. Dodd has said he expects final confirmation before Jan. 31.
If the Senate does not confirm Bernanke by then, he would remain on the Fed Board of Governors, and, although the law is unclear, he may be able to continue presiding as chairman pro tempore. Such a temporary status atop the Fed has only been accorded twice before, in 1948 (with Marriner Eccles) and 1996 (Alan Greenspan).
Should the Senate vote Bernanke down, he could either resign from the board or serve out his term as a governor, which ends in 2020. Vice Chairman Donald L. Kohn, a 39-year veteran of the Fed who is widely respected in economic policy circles, would act as chairman until a new nominee was named and confirmed.
Much of the criticism leveled at Bernanke during Thursday's hearing was well-trod ground. Dodd assailed him for regulatory failures at the central bank that contributed to the current crisis. But he voted for him, Dodd said, because of Bernanke's creative actions to contain the financial crisis.
Sen. Bob Corker (R-Tenn.), who also voted to forward the nomination to the full Senate, asked rhetorically, "Does he need to quit trying to expand the empire of the Fed? Absolutely."
Although Bernanke is a Republican and was first appointed by President George W. Bush, the sharpest criticism during the discussion came from conservatives on the banking committee. In particular, some Republicans demanded the chance to review confidential documents about the Fed's bailout of American International Group, the giant insurer that was on the verge of collapse last year, before a vote on confirmation.
The most vehement attack came from Sen. Jim Bunning (R-Ky.), a longtime Fed critic who routinely blasts Bernanke at banking committee hearings. Noting that Bernanke was named Time magazine's Person of the Year this week, Bunning listed some other people who received that title, including Adolf Hitler, Josef Stalin, Yasser Arafat, Vladimir Putin and Richard Nixon.