Bernanke Defends Caps on Fannie Mae, Freddie Mac

Federal Reserve Chairman Ben Bernanke, in a letter to Democratic Sen. Charles Schumer of New York, said he did not think caps on investment limits for Fannie Mae (FNM) and Freddie Mac (FRE) needed to be lifted.

"The current caps on GSE portfolios, which were imposed for safety and soundness reasons, need not be lifted to allow them to accommodate new borrowers," Bernanke said in a letter dated Aug. 27 that was released by Schumer's office on Wednesday.

Some lawmakers, including Schumer, say that easing the caps on the government-sponsored enterprises' investment holdings would help ease the turmoil in markets for subprime mortgages by allowing them to buy more loans.

Bernanke said the Fed was closely monitoring conditions in financial markets and has taken steps to ensure that there is ample liquidity including by lowering its discount rate for loans to banks.

"Also, the Federal Open Market Committee has stated that it is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruption in financial markets," Bernanke wrote.