Focus on Regulatory Reform:The Financial Future

A lot of concern centers on the proposed granting of powers to the Federal Reserve for the monitoring and control of systemic risk.The Fed would have to get Treasury Department approval for spending large amounts of money during crises.At such a time,although Treasury is involved,it is very important that the Federal Reserve preserve its independence and accountability for price stability and stable growth,Treasury Secretary Timothy Geithner told the Senate Banking Committee last week.Central banks around the world have traditionally policed systemic risk.Proposed changes to the Fed's role are modest.The Fed chairman would still be accountable to Congress.Our solutions focus on the central causes of the financial crisis.Conservative constraints on risk-taking will mitigate the too big to fail hazard.There is no conflict between the Fed conducting monetary policy and policing systemic risks,Mr.Geithner said.
A lot of things contributed to this crisis,Mr.Geithner explained.Future crises will require a study of how macroeconomic policy contributed to them.We need to be realistic in recognizing how difficult it will be to anticipate future risks.The critical failure of policy was in not imposing constriction on leverage in the good times.The Fed has a better feel for financial markets than any other government entity.
We're still in the midst of a challenging recession on a global scale,and we want to be able to respond to future risks,so Treasury should retain any money repaid to it by financial institutions,Mr.Geithner asserted at the Senate hearing,wearing a charcoal suit,white shirt and burgundy tie.He seems to be gaining the respect even of Republicans who doubted his suitability for his position.The gravity of the reform process was clearly evident in the atmosphere of the hearing.You could feel the weight of the occasion on everyone's shoulders.Would the Federal Reserve lose its independence under the reforms,or would the Fed be too powerful? No one wants to disturb the delicate balance of the financial regulatory bodies,but the wheels of government are rolling down this path of reform,and there doesn't seem there is any chance of stopping them.