Senate Hearings to Touch on Fed Role - WSJ.com

WASHINGTON -- Federal Reserve Chairman Ben Bernanke is likely to receive Senate support for a second term, but his confirmation hearings will also provide a forum for lawmakers to voice discontent about the government's handling of the financial crisis.

A particularly sharp debate could hurt another administration priority: securing a greater role for the Fed in regulating financial markets.

Several top Senate Democrats signaled strong support for President Barack Obama's decision to renominate Mr. Bernanke. Majority Leader Harry Reid (D., Nev.) said he expects the Senate to confirm Mr. Bernanke, calling his expertise and leadership "crucial as our nation has endured this financial crisis."

Republican Sen. Bob Corker of Tennessee, a member of the panel that will vote on the nomination, said Mr. Bernanke "has earned the right to see this through."

If history is a guide, Mr. Bernanke might not face strong opposition in the Senate, which has typically deferred to the White House on central-bank choices. Mr. Bernanke's predecessor, Alan Greenspan, repeatedly received wide support from both parties during his 18-year tenure.

Lurking in the background, however, is the Fed's central role in the government response to last year's financial tumult. Mr. Bernanke has become a lightning rod for criticism of federal interventions. The Fed has been criticized from the left for propping up the banking industry and failing as a mortgage regulator, and from the right for overstepping its bounds and stoking inflation.

"Tragically, like the rest of the Bush administration, he was asleep at the wheel during this period and did nothing to move our financial system onto safer grounds," said Sen. Bernie Sanders, an independent from Vermont who typically votes with Democrats.

Mr. Bernanke's hearing will give skeptical senators the opportunity to snipe at an Obama administration proposal to give the central bank new authority to regulate large financial firms. The concept is part of a broader Treasury effort to address perceived failures in oversight by redrawing the regulatory system.

The initiative has flagged amid a crowded congressional calendar and opposition to the Fed's proposed new role. Senate aides said they are likely to scale back the powers sought by the central bank when they introduce legislation next month.

"I expect many serious questions will be raised about the role of the Federal Reserve moving forward and what authorities it should and should not have," said Sen. Christopher Dodd, a Connecticut Democrat who is chairman of the Senate Banking Committee.

Mr. Dodd offered tepid support for Mr. Obama's decision, saying Mr. Bernanke "is probably the right choice." A committee spokeswoman said the panel hasn't determined when confirmation hearings would be held.

Mr. Dodd's House counterpart, Financial Services Chairman Barney Frank (D., Mass), said he strongly supported Mr. Bernanke's receiving a second term.

Fed critics have been battling to win greater oversight of the central bank's operations. There is growing bipartisan support in the House for legislation by Rep. Ron Paul (R., Texas), whose book "End the Fed," due out next month, already ranks high on online retailer Amazon.com's Top 100 list.

Mr. Paul's bill would give government examiners greater authority to audit the Fed. Though unlikely to become law on its own, mounting support for the measure -- roughly two-thirds of House lawmakers are co-sponsors -- means it could be attached to other legislation.

Other lawmakers suggested they would use Mr. Bernanke's nomination to push for clarity on how the Fed will extract itself from programs it has used to pump credit into the financial system. Sen. David Vitter (R., La.), a banking panel member, said he wants to hear a "concrete plan" for "ending that dangerous approach."

Republicans also are likely to use the confirmation hearing to highlight fiscal issues, such as Tuesday's report that the U.S. may rack up budget deficits larger than previously expected over the next decade.

Democratic Sen. Charles Schumer of New York, trying to pre-empt what could become a free for all, warned about using Mr. Bernanke's nomination for political gain.

"Chairman Bernanke's confirmation hearing should not be used as a stage by those with wrongheaded political agendas, like trimming the Fed's independence," Mr. Schumer said.

Write to Michael R. Crittenden at michael.crittenden@dowjones.com

Printed in The Wall Street Journal, page A5