Who should regulate banks?

February 25th, 2010 by Rick Drain

Federal Reserve Chairman Bernanke is still campaigning for banking regulation to be given to the Fed, rather than to an actual Federal agency like the Treasury.
He misses the difference between two meanings of “supervise” when he argues that the Fed should remain the bank supervisor so it can stay in touch with bank health.

Meaning 1: Literally “over-seeing” the banks, keeping an eye on them.

Meaning 2: Regulating the banks. The Fed could continue to over-see without doing any regulating. In fact, that’s what they did since Greenspan became Chairman of the FOMC.

Precisely because the Fed didn’t do any regulating, we need to give that power to a more responsive and transparent Federal Agency to serve the citizens’ needs, not the banks’.