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US economy could withstand sharp dlr drop-Bernanke

Written by: Staff
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WASHINGTON, Mar 22 (Reuters) The chronic U.S. trade gap need not fuel a ''precipitous'' decline in the dollar, but the economy could handle it if it did, Federal Reserve Chairman Ben Bernanke said on Tuesday.

''Although U.S. trade deficits cannot continue to widen forever, these deficits need not engender a precipitous decline in the dollar, nor should such a decline, were it to occur, necessarily disrupt financial markets, production or employment,'' Bernanke said in a letter to Rep. Brad Sherman, a California Democrat.

The letter, which was released by Sherman's office, was in response to question the lawmaker submitted in connection with a Feb. 15 House of Representatives Financial Services Committee hearing on monetary policy.

In the letter, Bernanke also restated the Fed's position that Congress should review an exemption that allows commercial firms to acquire industrials banks, warning that decisions on the issue could have ''important ramifications'' for the U.S.

economy.

Industrial banks are state-chartered and state-regulated, and fall under the supervision of the Federal Deposit Insurance Corporation. Commercial companies may own them because federal laws that bar non-financial companies from engaging in banking activities do not classify them as banks.

Wal-Mart Stores, Inc., the world's largest retailer, has applied to open an industrial bank in Utah, an application under review by the Federal Deposit Insurance Corp.

(FDIC).

''The question of whether, or to what extent, the mixing of banking and commerce should be permitted is an important issue and one that, we believe, should be made by Congress,'' Bernanke said.

''The decision has important ramifications for the structure of the American financial system and the economy, particularly because any widespread combinations of banking and commerce likely would be irreversible,'' he added.

In a news release, Sherman said the statement ''clearly urges Congress to prevent regulators from mixing banking and commerce.'' REUTERS SD VC1656

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