The Fed, the Council, and a Whole Lot of Gray

By Cheyenne Hopkins


As the debate over regulatory reform unfolds, a key question is just how much control over large companies should be vested in one agency. The Obama administration wants to hand sole authority to identify and oversee companies that pose systemic risks to the Federal Reserve Board. A council of eight regulators would be created to advise the Fed, but the central bank would not have to heed its recommendations. Proponents praise this model as nimble, efficient and accountable, and say the Fed is the obvious choice for the job. But critics claim the Fed already has a wide range of responsibilities, some of which it failed to fulfill in the run-up to the crisis, and should be counterbalanced by a strong advisory council. Karen Shaw Petrou, managing director for Federal Financial Analytics Inc., neatly summed up the question: “The real heart of the matter is the qualms with the Fed and the lack of a clear alternative to it as a systemic risk regulator.” Dealing with systemic risk is a key goal of President Obama’s 88-page proposal to revamp financial services oversight.