WASHINGTON, July 18 (Reuters) - Below are highlights from the question and answer session of a Senate Banking Committee hearing on Thursday with Federal Reserve Chairman Ben Bernanke testifying on monetary policy and the U.S. economy. Bernanke repeated the prepared testimony he delivered on Wednesday to the House Financial Services Committee. BERNANKE ON DATA SINCE JUNE MEETING; POSSIBLE SEPTEMBER CHANGE TO QE: "The June FOMC meeting was only a few weeks ago. There have been some data points since then and...they have been mixed. So I think it's way too early to make any judgment. We will obviously review the data and what we're looking for is a pick-up as the year progresses." "One of the reasons that the economy has been so slow in the early part of 2013 is because of fiscal factors. It's hard to judge how long those factors will last. But if the economy begins to move beyond that point and fiscal restraint becomes somewhat less pronounced then we should see as you said a pick-up in growth." "We're obviously going to look at the data, it's a committee decision (on whether to taper QE in September), and it's going to depend on whether we see the improvement which I described." BERNANKE ON REFORMING MORTGAGE MARKET: "A key issue is going to be not so much making mortgages cheaper but rather making sure that there is some kind of backstop or protection for situations where the financial markets are in distress, like they were recently. And the question is - the government is one way to do that, there may be other ways to do that - but if the government is involved, I think it would be very important to make sure first of all that the government is appropriately compensated for whatever insurance or backing it provides, and secondly that firms that are securitizing hold enough capital, again, to protect the taxpayer from losses. If that's done, I think those would be very helpful if you come to a solution that involves a government role." BERNANKE ON GOLD: "Gold is an unusual asset. It's an asset that people hold as disaster insurance. A lot of people hold gold as an inflation hedge. But movements of gold prices don't predict inflation very well, actually. "But anyway, the perception is that by holding gold you have a hard asset that will protect you in case of some kind of major problem. I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords... "Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes. But let me just end by saying that nobody really understands gold prices, and I don't pretend to understand them either." BERNANKE ON BANK CAPITAL ADEQUACY: "Basel III is a floor, it's not a ceiling. It's really a least common denominator....We are prepared to do whatever additional steps are needed in order to make our financial systems safe. I don't know whether all countriees will follow us but there are other countries, Switzerland comes to mind, U.K., that have thought hard about this and have taken additional steps to strengthen their banking systems. We do have a leadership position and I hope that will happen, but I don't think it will be universal....The key financial centers, which recognize how important banks are to their economy, but also the fact that in some cases the banks are bigger than their economy, recognize that it's very important to have stability, and they have been particulary willing to consider additonal steps." BERNANKE ON VIEWS AT FED POLICY MEETING: "We have a very careful discussion at the meeting. We have what's called a go-around where every person including the non-voters gets to express for several minutes their view on policy, their current perspective. And the general scenario which I described in my press conference is broadly supported by people on the (policy-setting Federal Open Market) Committee, including both voters and non-voters." BERNANKE ON MEASURING INFLATION: "There was a bipartisan commission on inflation measurement a few years ago which concluded that the official inflation numbers overstated, not understated inflation. So some of the changes that they recommended have been included. "There's a distinction between prices being high and prices rising...(cost of living) isn't going up, it's high, it's not going up. In other words, real wages are going down because even though inflation is very low wages have been growing slower than inflation...and it has to do with productivity in the economy and distribution of income and the Fed really can't do a whole lot about that." BERNANKE ON GROWTH, EMPLOYMENT OUTLOOK "We specifically set as a goal an improvement in the outlook for the labor market, as opposed to the labor market per se, and what that means is that we want to see improvement in labor market indicators, but we also will have a sense that improvement will continue, and for improvement to continue you need to have a broader-based growth." BERNANKE ON FINANCIAL STABILITY RISKS AND LOAN COVENANTS: "It's very difficult to know exactly what the size of the risk is... For example, we might be looking at covenants on loans and whether or not those covenants are becoming less restrictive, which is suggestive of poor underwriting. We monitor those kinds of things and we report those to the FOMC at essentially every meeting so they can understand where there may be sectors where financial risk is building and try to gauge those risks." BERNANKE ON POLICY AND ECONOMIC GROWTH POTENTIAL: "It's true that no monetary policy can do very much about the long-term growth potential of the economy, but in a situation where we are well below that potential, if we can get back to that potential more quickly, that is a net gain that is enjoyed by the economy." BERNANKE ON THE EFFECTIVENESS OF QUANTITATIVE EASING: "The preponderance of the evidence is that, while this is not as powerful a tool as ordinary monetary policy - rate policy - that it does have a meaningful impact on jobs and on the economy. In particular, since 2008 where we've had no ability to move short-term rates, and we've had some periods where we became somewhat more concerned about deflation, we think that QE has provided an important boost at critical times to help the economy continue to move forward." BERNANKE ON STUDENT DEBT AND FINANCIAL STABILITY: "The amount of student debt is large, it's over a trillion dollars. At this point, I think that it's not particularly likely to cause any sharp instability of the sort we saw in the last few years." BERNANKE ON NOT THREATENING CONGRESS WITH HIGHER RATES: "I don't think we should be in a position of trying to threaten Congress with higher interest rates or something like that." BERNANKE ON MONETARY POLICY AND FINANCIAL STABILITY: "The relationship between monetary policy and financial stability is a complicated one...very low rates for a sustained period can lead to reach for yield and other risky behavior. We are trying to address that primarily through regulation, through oversight, through monitoring, and that's our first line of defense, certainly, for dealing with those sorts of issues." BERNANKE ON NEED FOR CONTINUED MONETARY ACCOMMODATION: "With inflation below target and with unemployment still quite high - and by some measures with unemployment in some ways being even too optimistic a measure of the state of the labor market... - both sides of our statutory mandate are suggesting that we need to maintain a highly accommodative monetary policy for the foreseeable future. And that's what we intend to do." BERNANKE ON THE FED'S BALANCE SHEET: "Ultimately we will stop rolling over and reinvesting the securities and then they will begin to run off and then the balance sheet will start to come down. We have done a lot of scenario analysis, of course, and allowing the securities to run off at a certain point when the economy is strong enough does not delay (balance sheet) normalization by very much." We are "certainly not (expecting winding down of balance sheet) until we get to the rate increase part of the ... sequence that I described to you and there, again, we are not planning at this point to sell any MBS, what we would be doing is at some point allowing the maturing securities just to run off and not replacing them." BERNANKE ON HOUSING: "One of the risks that we face now is that there is still a pretty significant part of the population that is having considerable difficulty accessing mortgage credit even though they may have the financial wherewithal to be worthy of that credit." BERNANKE ON ASSESSING RISKS OF QUANTITATIVE EASING: "There are costs and risks to QE and we are watching those carefully. We've said in our statement that one of the considerations that we're looking at in every meeting is the efficiency and costs of this program and we do a benefit cost analysis and we discuss the benefits of additional purchases." BERNANKE ON REASONS BEHIND HIGHER LONGER-TERM RATES: "There has been some better economic news. As investors see brighter prospects ahead, interest rates tend to rise. For example we saw a relatively good labor market report, which was accompanied by a pretty sharp increase in interest rates." "The second reason for increases in rates is probably the unwinding of leveraged and perhaps excessively risky positions in the market. It's probably a good thing to have that happen, although the tightening that's associated with that is unwelcome. But at least the benefit of that is that some concerns about building financial risks are mitigated in that way and probably make some FOMC participants comfortable with this tool going forward."