WASHINGTON (MNI) – The following is the second and final section of
the text of Federal Reserve Chairman Ben Bernanke’s remarks prepared for
the Joint Economic Committee of Congress Wednesday:
The Federal Reserve has been working to ensure that our bank
supervision does not inadvertently impede sound lending and thus slow
the recovery. Achieving the appropriate balance between necessary
prudence and the need to continue making sound loans to creditworthy
borrowers is in the interest of banks, borrowers, and the economy as a
whole. Toward this end, in cooperation with the other banking
regulators, we have issued policy statements to bankers and examiners
emphasizing the importance of lending to creditworthy customers, working
with troubled borrowers to restructure loans, managing commercial real
estate exposures appropriately, and taking a careful but balanced
approach to small business lending.
We have accompanied our guidance with training programs for both
Federal Reserve and state examiners, and with outreach to bankers
throughout the industry. For example, we just completed a training
initiative that reached about 1,000 examiners. We are also conducting a
series of meetings across the country with private- and public-sector
partners to gather information about the credit needs of small
businesses and how those needs can best be met.
We have also stepped up our information gathering, so that we can
better understand factors that may be inhibiting bank lending. These
efforts include a survey by examiners of banks’ practices in working out
loans, the results of which will serve as a baseline against which we
will assess the effectiveness of our supervisory guidance. We are also
obtaining additional information on small business credit conditions.
For example, we assisted the National Federation of Independent Business
in developing a survey to assess barriers to credit access by small
businesses. And we are using our own Senior Loan Officer Opinion Survey
on Bank Lending Practices to monitor changes in bank lending to small
businesses.
Fiscal Policy
In addition to the near-term challenge of fostering improved
economic performance and stronger labor markets, we as a nation face the
difficult but essential task of achieving longer term sustainability of
the nation’s fiscal position. The federal budget deficit is on track
this year to be nearly as wide as the $1.4 trillion gap recorded in
fiscal year 2009. To an important extent, these extremely large deficits
are the result of the effects of the weak economy on revenues and
outlays, along with the necessary actions that were taken to counter the
recession and restore financial stability. But an important part of the
deficit appears to be structural; that is, it is expected to remain even
after economic and financial conditions have returned to normal.
In particular, the Administration and the Congressional Budget
Office (CBO) project that the deficit will recede somewhat over the next
two years as the temporary stimulus measures wind down and as economic
recovery leads to higher revenues. Thereafter, however, the annual
deficit is expected to remain high through 2020, in the neighborhood of
4 to 5 percent of GDP.
Deficits at that level would lead the ratio of federal debt held by
the public to the GDP, already expected to be greater than 70 percent at
the end of fiscal 2012, to rise considerably further. This baseline
projection assumes that most discretionary spending grows more slowly
than nominal GDP, that no expiring tax cuts are extended, and that
current provisions that provide most taxpayers relief from the
alternative minimum tax are not further extended.
Under an alternative scenario that drops those assumptions, the
deficit at the end of 2020 would be 9 percent of GDP and the federal
debt would balloon to more than 100 percent of GDP. Although sizable
deficits are unavoidable in the near term, maintaining the confidence of
the public and financial markets requires that policymakers move
decisively to set the federal budget on a trajectory toward sustainable
fiscal balance. A credible plan for fiscal sustainability could yield
substantial near-term benefits in terms of lower long-term interest
rates and increased consumer and business confidence. Timely attention
to these issues is important, not only for maintaining credibility, but
because budgetary changes are less likely to create hardship or
dislocations when the individuals affected are given adequate time to
plan and adjust. In other words, addressing the countrys fiscal
problems will require difficult choices, but postponing them will only
make them more difficult.
Thank you. I would be pleased to take your questions.
—
Footnotes
(These figures have been calculated by the Federal Reserve using
the CBOs estimates of the budgetary effects of
selected policy alternatives to adjust the CBO’s baseline budget
projection released in a recent report (see
Congressional Budget Office (2010), The Budget and Economic Outlook: Fiscal Years 2010 to 2020 (Washington:
CBO, January), also available at www.cbo.gov/ftpdocs/108xx/doc10871/frontmatter.shtml). The specific alternative
policies used in these calculations included the CBOs estimates of the effects of reducing troop levels in overseas
military operations to 60,000 by 2015, increasing regular discretionary appropriations at the rate of growth of
nominal GDP, extending all expiring tax provisions, and indexing the
alternative minimum tax for inflation.)
(See William J. Dennis (2010), “Small Business Credit in a Deep
Recession,” National Federation of Small Business Research Foundation
(Washington: NFIB, February), available at
www.nfib.com/ResearchFoundation.
See Board of Governors of the Federal
Reserve System, “Senior Loan Officer Opinion Survey on Bank Lending
Practices,” webpage, www.federalreserve.gov/boarddocs/SnLoanSurvey.)
(See Board of Governors of the Federal Reserve System, Federal
Deposit Insurance Corporation, Office of the Comptroller of the
Currency, and Office of Thrift Supervision (2008), “Interagency
Statement on Meeting the Needs of Creditworthy Borrowers,” joint press
release, November 12,
www.federalreserve.gov/newsevents/press/bcreg/20081112a.htm; Board of
Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, National Credit Union Administration, Office of the
Comptroller of the Currency, Office of Thrift Supervision, and
Conference of State Bank Supervisors (2010), Regulators Issue Statement
on Lending to Creditworthy Small Businesses,” joint press release,
February 5, www.federalreserve.gov/newsevents/press/bcreg/20100205a.htm;
Board of Governors of the Federal Reserve System, Division of Banking
Supervision and Regulation (2009), “Prudent Commercial Real Estate Loan
Workouts,” Supervision and Regulation Letter SR 09-7 (October 30),
www.federalreserve.gov/boarddocs/srletters/2009/SR0907.htm; and Office
of the Comptroller of the Currency, Federal Deposit Insurance
Corporation, Federal Reserve Board, Federal Financial Institutions
Examination Council and Office of Thrift Supervision (2009), “Policy
Statement on Prudent Commercial Real Estate Loan Workouts,” joint policy
statement, October 30,
www.federalreserve.gov/boarddocs/srletters/2009/sr0907a1.pdf.)
(1 For more on the SCAP, see Ben S. Bernanke (2009), “The
Supervisory Capital Assessment Program,” speech delivered at the Federal
Reserve Bank of Atlanta 2009 Financial Markets Conference, Jekyll
Island, Ga., May 11,
www.federalreserve.gov/newsevents/speech/bernanke20090511a.htm; Board of
Governors of the Federal Reserve System (2009), Federal Reserve, OCC,
and FDIC release results of the Supervisory Capital Assessment Program,
press release, May 7,
www.federalreserve.gov/newsevents/press/bcreg/20090507a.htm; and Daniel
K. Tarullo (2010), Lessons from the Crisis Stress Tests, speech
delivered at the Federal Reserve Board International Research Forum on
Monetary Policy, Washington, March 26,
www.federalreserve.gov/newsevents/speech/tarullo20100326a.htm.)
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** Market News International Washington Bureau: 202-371-2121 **
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