Federal Reserve nominee Yellen defends agencies policies before Senate banking panel

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WASHINGTON -- The Federal Reserve has taken meaningful steps to strengthen its scrutiny of the nation's financial system and prevent another economic crisis, the White House's nominee to lead the central bank said Thursday.

Janet Yellen appeared before the Senate banking committee Thursday for a hearing on her confirmation. Many lawmakers' questions focused on what the Fed has done to shore up the banking sector and its progress in crafting new regulations required under sweeping reforms passed by Congress three years ago.

They also challenged Ms. Yellen to address ways to limit the dominance of the nation's largest financial institutions that have been dubbed "too big to fail."

Addressing that issue "has to be among the most important goals of the post-crisis period," she said during the hearing. "Too-big-to-fail is damaging, it creates moral hazard, it corrodes market discipline, it creates a threat to financial stability, and it does -- unfairly, in my view -- advantage large banking firms over small ones."

A committee vote on Ms. Yellen's nomination could come as soon as next week, a congressional aide said. She is almost certain to be approved and head to the full Senate for consideration.

But at least one of the panel's Republican senators, Louisiana's David Vitter, said Thursday that he will oppose her confirmation. "Unfortunately, none of her answers were reassuring to me," he said on Fox Business Network. "I am very concerned about just the free-money policy, with essentially no end in sight."

President Barack Obama nominated Ms. Yellen for the top job at the Fed last month after facing backlash from his own party, as well as several key Republicans, over his first choice for the position, former U.S. Treasury Secretary Larry Summers. Nearly two dozen Democrats signed a letter over the summer supporting Ms. Yellen for the job instead.

"Dr. Yellen has proved through her extensive and impressive record in public service and academia that she is most qualified to be the next chair of the Federal Reserve," the committee chairman, Sen. Tim Johnson, D-S.D., said Friday.

Ms. Yellen, who now holds the No. 2 position at the Fed, has been credited with sounding early alarms about the run-up in housing prices before the market collapsed.

"As a first line of defense, we have a variety of supervisory tools, micro- and macro-prudential, that we can use to attempt to limit the behavior that is giving rise to those asset price mis-alignments," Ms. Yellen said. But she added, "I would not rule out using monetary policy."

Lawmakers also tried to pin down a timeline for when the Fed might begin scaling back its $85-billion-a-month stimulus efforts.

When the central bank signaled that it could begin dialing down the program this year, financial markets shivered, causing stock prices to plunge and a range of interest rates to shoot up. The Fed has since retreated from those statements.

Ms. Yellen defended the move as necessary so the Fed could assess how the rise in rates would affect the housing market, which has a critical role in the recovery. She said the Fed considers market conditions but is not beholden to them.


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