Federal Reserve Chairman Ben Bernanke on Tuesday said the Greek debt crisis was a European problem but one that could have hit U.S. banks if left unattended, a senior Republican senator said.
"Chairman Bernanke explained what was going on in Europe, it was basically a European problem but with ramifications probably on a lot of our banks and our banking system if there was no intervention," Senator Richard Shelby told reporters after a closed-door briefing Bernanke provided lawmakers.
The Fed chairman met with senators to counter concerns the Fed's decision to provide dollars to foreign central banks amounts to helping to bail out debt-strapped nations.
The Fed's action buttressed a European-led $1 trillion plan announced on Monday to stop Greece's debt crisis from spreading.
The Fed used similar currency swap lines to battle the 2007-2008 global financial crisis but closed them in February as markets settled. Some lawmakers criticized that effort to ensure dollar liquidity in overseas markets as putting U.S. taxpayer money at potential risk.
The Fed on Monday posted "frequently asked questions" about currency swaps on its website noting dollars the Fed provides would be paid back in full by other central banks, a message repeated by Bernanke on Tuesday.
"This is not a loan by U.S. taxpayers but a liquidity vehicle," Republican Senator Bob Corker said after the briefing. "Based on information I have today, it seemed to me it is a standard procedure that central banks engage in with each other."
The politically touchy move by the Fed comes at a difficult time for the central bank. It is already battling efforts on Capitol Hill to remove it from overseeing smaller banks and to open up monetary policy to congressional audits.
The Senate on Tuesday approved an amendment to a wide-ranging financial reform bill that would allow a one-time audit of the Fed's emergency lending during the financial crisis.
Initially, the amendment would have allowed repeated audits, but the Fed and its allies in the Senate and Obama administration successfully fought that off.
Fed officials say the currency swaps are necessary to protect the fragile U.S. economic recovery from a serious shock that could result if the Greek fiscal crisis spreads.
Richmond Fed Bank President Jeffrey Lacker forecast little political fallout from the reopening of the swaps programs.
The Fed is looking to be "more transparent around this round of swaps ...We are going to be as transparent as we absolutely can be," he said after a speech in Greensboro, North Carolina.
On Capitol Hill, lawmakers warned that the European turmoil should serve as a wake-up call to the deficit-heavy United States to get its own fiscal house in order.
"We could very well end up in the same place without having the courage to do the things that are necessary in this country," Corker said.
The U.S. central bank said on Sunday it was reopening currency swap lines with the European Central Bank, the Bank of Canada, the Bank of England and the Swiss National Bank.
On Monday, it reopened a swap line with the Bank of Japan.
In an effort to bolster its case that no taxpayer funds are at risk, the Fed on Tuesday said it plans to make public contractual agreements it has for the reopened swap lines.
The Fed will publish details of activity in each of the swaps lines on a weekly basis, the official added.
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