The Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) both ended with gains of 0.5%, while the NASDAQ Composite (^IXIC) ended with a 0.6% gain, following Federal Reserve Chairworman Janet Yellen's testimony before the Senate Banking Committee.
Yellen said U.S. economic data had been softening, but also said low inflation left the central bank free to pursue policies to continue to spur employment growth.
When pressed by Sen. David Vitter (R., La.) when the Fed would finalize rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Yellen said the regulator's work would be completed in the not-too-distant future.
Must Read: Most Bank Stocks Rise on 'Credit Suisse Day'
Vitter in an interview with Joe Deaux discussed his concern that Federal Reserve officials didn't have enough experience in working with community banks. Vitter also said that the U.S. economy was on a "sugar high" from the central bank's policy, which has included keeping the short-term federal funds rate in historically low range of zero to 0.25% since late 2008.
When asked about what worries him about Janet Yellen's leadership of the Fed, Vitter said, "She's largely a continuation of Ben Bernanke in terms of large areas of policy... I don't think this free policy is sustainable."
The KBW Bank Index (I:BKX) was up 0.4% to 68.73, with all but seven of the 24 component stocks ending with gains.
Fannie and Freddie on Fire
Shares of both Fannie Mae (FNMA) and Freddie Mac (FMCC) -- together known as the government sponsored enterprises, or GSEs -- continued to climb, following 11% gains on Wednesday, as investors cheered a ruling by Judge Margaret Sweeney in the U.S. Court of Federal Claims that the lawsuit against the federal government by a group of institutional investors -- including Bruce Berkowitz's Fairholme Funds -- could proceed to the discovery phase.
Both GSEs were taken under government conservatorship at the height of the U.S. credit crisis in September 2008. There is a major disagreement between private investors and the U.S. Treasury over a change to the GSE bailout agreements in August 2012, requiring Fanie and Freddie to sweep all profits to the government in excess of minimum capital buffers. This means the GSEs are unable to buy back government-held preferred shares and that non-government shareholders have their dividends on hold indefinitely.
Freddie Mac on Thursday reported fourth-quarter earnings of $6.8 billion and said it would pay a dividend to the Treasury of $10.4 billion, in March. Following their March dividend payments, dividends paid by Fannie and Freddie to the government will total $199 billion, exceeding the government's senior preferred investment of $189.4 billion.
Common shares of Fannie Mae were up 4.5% Thursday to close at $$4.67, while Freddie's common shares rose 7$ to $4.61. The GSEs' junior preferred shares were very strong, with Fannie Mae's preferred Series F shares (FNMAS) shares rising 9% to $11.98, and Freddie's preferred Series Z (FMCKJ) rising 6.2% to $12.27. Both preferred issues have face values of $25.00.
Please see TheStreet's breaking coverage of the Fannie and Freddie controversy: