In The New York Times today, Richard Posner, the outspoken federal judge, says about the Obama financial-regulatory proposal: “Regulatory structure is not the problem; Britain’s central bank resembles what the report would like the Federal Reserve to be, yet it did no better in the crisis. The issue is indeed performance, and that is where the focus of reform should be.”
But Britain’s Bank of England doesn’t have the powers over financial institutions that the Obama proposal would assign to the Fed, a shortcoming that was exposed by the Northern Rock debacle. Oversight of financial institutions in Britain is assigned to the Financial Services Authority; the Obama proposal would give the Fed significantly more oversight over the biggest banks and financial institution than the Bank of England has, a proposal that has drawn some fire on Capitol Hill.
As a report by Alistair Turner, the chief of the FSA, put it: “The Bank of England tended to focus on monetary policy analysis as required by the inflation target, and while it did some excellent analytical work in preparation for the Financial Stability Review, that analysis did not result in policy responses (using either monetary or regulatory levers) designed to offset the risks identified. The FSA focused too much on the supervision of individual institutions, and insufficiently on wider sectoral and system-wide risks. The vital activity of macro-prudential analysis, and the definition and use of macro-prudential tools, fell between two stools. In the words of Paul Tucker, now Deputy Governor of the Bank of England for financial stability, the problem was not overlap but ‘underlap’.” The Obama plan would assign the Fed significant responsibility for supervising individual institutions whose failure would endanger the financial system.
See more here:
Regulatory Plan for Fed Doesn’t Equate With Britain’s Central Bank
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