THE STASH OCTOBER 1, 2009
As I've said before, I admire the Fed chairman's political touch, which he demonstrated again today by making a key concession to Fed critics and skeptics: Apparently Bernanke is now willing to share power for keeping an eye on systemic risk with a council of regulators. It's the kind of thing people like FDIC chairman Sheila Bair have proposed, so that the Fed doesn't end up cornering the market on financial regulatory authority.
I just wonder if this is the right concession to make. For one thing, I'm not entirely sure how a council of regulators is supposed to work. At some point, someone has to have final say over whether an institution or set of financial relationships poses a system-wide risk--unless you want complete paralysis. (Tim Geithner apparently has similar concerns.) Now maybe the idea is to let the council have its say but give the Fed final authority. Which would be fine with me but not much of a concession.
At the same time, Bernanke is apparently determined to keep regulating consumer financial products, something the Fed completely whiffed on during the bubble years. I guess I'd much rather see the Fed give this one up and hold firm on the systemic risk question.
Having said that, I see how the bureaucratic politics would dictate the opposite. That is, the people Bernanke needs to win over are fellow regulators like Bair and her powerful congressional allies, Chris Dodd and Barney Frank. And these people seem much more concerned about concentrating systemic risk regulation at the Fed than they do about whether it hangs on to its consumer regulatory gig. (My sense is that Frank and Dodd have much bigger worries when it comes to the consumer agency than what the Fed thinks about it...)