Washington, D.C. - Today, U.S. Congressman Kevin Brady (R-The Woodlands) made the following statement at the Joint Economic Committee hearing with the Honorable Ben Bernanke, Chairman of the Federal Reserve.

“I am pleased to join in welcoming Chairman Bernanke before the Joint Economic Committee this morning.  Chairman Bernanke’s testimony comes at a critical time given the financial turmoil that has challenged Federal Reserve policymakers in recent months. 

“The U.S. economy, which had grown at a 4.9 percent rate in the third quarter of last year, has slowed dramatically.  Home building has fallen sharply as housing prices have continued to decline, undermining the value of mortgage-backed securities.  Since last summer it has been clear that the riskiness of many of these investments was greatly underestimated by both investors and regulators. 

“A reappraisal of risk in the financial markets has led to the realization that many mortgage-related investments as well as other securities are of dubious quality. Major banks and other financial institutions have had to make large write-downs of assets that have, in turn, eroded their capital and limited their ability to lend to households and firms in the future.  Segments of the financial markets have seized up, requiring aggressive Federal Reserve actions to limit instability. 

“The Fed has responded by slashing short-term interest rates and developing new and innovative ways of providing liquidity to the financial system.  By extending its lending facilities to primary dealers and expanding the scope of acceptable collateral, the Fed has helped to contain at least some of the recent financial market instability.  

“The events of recent weeks have made it very clear that a major reform of financial regulation is needed, as noted by Secretary Paulson.  The current structure of financial regulation dates back to the 1930s and does not reflect the financial innovation that has occurred in recent decades. Some streamlining and consolidation obviously is needed whether or not one agrees entirely with every detail in the new Treasury proposal for financial regulatory reform. 

“At this time of financial instability and uncertainty, the Federal Reserve has taken important steps to respond in a way that improves the prospects for economic growth.  Congress has also made a contribution by enacting the economic stimulus legislation.  The monetary and fiscal policy actions taken to date improve the outlook for the second half of the year, but more remains to be done.  Given the circumstances, Congress must also reject steps to increase taxes or take other actions that would undermine future economic growth.”