The renomination of Federal Reserve Board Chairman Ben Bernanke wasn't supposed to be a nail-biter, but the prospect of another four-year term has lawmakers from both sides throwing up roadblocks.
Sen. Jim Bunning, the staunchly conservative Kentucky Republican, vowed Thursday "to do everything I can to stop your nomination and drag out the process as long as possible." His threat came a day after Sen. Bernie Sanders, a left-leaning independent from Vermont, put a hold on Bernanke's nomination, forcing Senate leaders to line up 60 votes before proceeding.
As Bernanke faced the Senate Banking Committee for his confirmation hearing, other top lawmakers were not as harsh toward the Fed chief but made it clear they had not decided how to cast their votes.
"We are deep in the woods," said Sen. Richard Shelby, the top GOP member on the panel. "The question is whether Chairman Bernanke is the person best suited to lead us out and keep us out."
Other Republican members of the committee shared Shelby's skepticism. Sen. Jim DeMint, R-S.C., said he would "probably" support Bernanke, but "I still need to think about it." Sen. Kay Bailey Hutchison told reporters she was "going to wait" to decide how to vote.
"There are mistakes that were made for sure," the Texas Republican said.
Bernanke is ultimately still expected to keep his seat at the Fed, but questions remain over how bruised he will be in the process.
Senate Banking Chairman Chris Dodd, who said this summer that Bernanke was "probably" the right choice, said Thursday that he is "the right leader for this moment in our nation's economic history."
But observers expect Bernanke to face a tougher vote in the Senate than any previous Fed chairman in recent memory. Brian Gardner, an analyst at KBW's Keefe, Bruyette and Woods, said 25 to 39 senators might vote against Bernanke, a result that would likely harm his reputation.
"He personally and the institution of the Fed are probably a little tarnished and will lose some credibility here," Gardner said.
Others said the negativity in Congress is not directed at Bernanke as much as it is at the Fed as an institution and the government agencies that were involved in last year's bailouts. "It's a reflection of the crisis, which is grave, and in which people are genuinely asking questions," Sen. Jack Reed, D-R.I., said in an interview. "I don't think it reflects on his abilities."
Still, evidence of Bernanke's weakened state was on display Thursday. Though he has repeatedly insisted that the Fed should keep its banking supervision powers to help conduct monetary policy, the first question of the hearing challenged him on that front. Dodd asked why financial oversight authority should not be stripped from the Fed, as legislation introduced by the Connecticut Democrat calls for.
Bernanke again noted the importance of supervision to the Fed's thinking on monetary policy, but he expanded his argument to highlight how banking oversight plays into the central bank's role as a lender of last resort.
"I think the greater benefit is actually to our ability to help maintain financial stability and be an effective lender of last resort," he said. "In the current crisis, for example, our ability to address problems in the banking system, to help stabilize key markets, was critically dependent on our ability to see what was going on in the banking system. … There's no way we could have been as involved or effective in this crisis if we did not have that expertise."
Ultimately, Bernanke said, the Fed was not alone in making mistakes before the financial crisis and should not take the brunt of the punishment.
"The question that lies before you," he said, "is if you fight a battle and you lose the battle, does that mean you never use an army again? You have to — you have to improve and fix the situation."
Shelby pressed Bernanke about how much time the Fed's policymaking committee spends on supervision issues when it meets.
"In a typical meeting, there'd be very little discussion," Bernanke initially responded, before backpedaling. "Let me take that back. Recently, we've talked about it quite a bit because of the financial crisis. It depends on the situation."
Other lawmakers were not persuaded and some Republicans seemed to gravitate more toward Dodd's position. Sen. Bob Corker, R-Tenn., told reporters he worried that the Fed's independence would be threatened by its role in supervision, particularly if it became the systemic-risk regulator. "If that ended up being the Fed, I think over time the Fed's independence would be absolutely decimated," the Tennessee Republican said.
Sens. David Vitter, R-La., and Jon Tester, D-Mont., relayed criticism from constituents that the Fed is not allowing banks to lend at acceptable levels, especially to small businesses. Bernanke said the Fed simply wants to make sure that the loans banks make have a shot at being repaid.
Dodd echoed other lawmakers who asked for an explanation of why the Fed made American International Group's counterparties whole when it rescued the insurance giant. Bernanke said the Fed had no leverage over the counterparties and couldn't force a discount on them. "You're the chairman of the Federal Reserve," Dodd said. "You've got power."
Bernanke was also forced to defend the governance of the 12 regional Fed banks. In addition to other industries, financial services representatives sit on the boards of the regional banks, which help determine their presidents.
"Do you believe that anybody that's going to be supervised by a banking regulator should have a say-so in choosing that regulator?" Shelby asked. "It seems to me and others it's an inherent conflict of interest and an incestuous financial relationship."
The boards are made up of many industries, Bernanke responded, including agriculture and manufacturing. None of the directors are involved in supervision issues, he said.
"There are very strong firewalls," Bernanke said.