Fed Financial Reform B*tch Fighting Rages On
No more slogging through long rambling speeches to get to the meaty parts, kids, the Richmond Fed has taken a proactive stance in the project to save the Fed's ass and wants you to know how it feels about important Fed "responsibilities" like bank supervision, governance, Fed audits and of course the all-important "whatever it takes".
Take it away, JDA's favorite Fed bank (and if you really have a whole day to waste, you can click through to see all the awesome, non-nuclear financial favors the Fed does for you at that link):
Several regulatory reform proposals under consideration would change or eliminate the Federal Reserve’s supervisory responsibilities.
The structure of Federal Reserve Banks has been questioned by some who have said that the independent nature of the Banks does not provide sufficient public oversight. Proposals have been introduced to change the process for appointing directors and presidents of Reserve Banks to increase the influence of the federal government.
Congress has considered several measures that would expand the authority of the Government Accountability Office to review certain operations of the Federal Reserve System. These proposals would remove exceptions from existing law and allow for frequent and ongoing GAO reviews of the Fed’s deliberations, decisions and actions on monetary policy.
Proposals for regulatory reform include changes to the responsibilities of the Fed and other agencies, new regulations for “systemically important firms” and new procedures for handling failures of those firms. One important aspect to any change in the regulatory environment is the extent to which it provides clear and credible limits to the federal financial safety net.
The federal financial safety net – the protection, both explicit and implicit, afforded to firms in danger of failure – arguably has increased risk-taking among many institutions and reduced the incentive for creditors to appropriately assess risk and related costs. In addition, the likely provision of federal financial assurance may have reduced the incentive of an institution to hold adequate reserves in the case of a liquidity crisis.
While Richmond was putting together its views (personally I would have liked more details like Jeff Lacker's favorite color or whether or not Sally Green likes long walks on the beach to go with her central banking), the rest of the Federal Reserve System has been out cheerleading this anti-financial reform agenda that leaves the Fed with little to do except take the blame. Seriously.
Case in point, our favorite arsonist.
A senior Federal Reserve official on Thursday repeated earlier comments that U.S. regulatory reform proposals before Congress probably won't prevent a future crisis and could hamper the central bank's ability to deal with one.
St. Louis Federal Reserve Bank President James Bullard told a business group that a plan for a multi-member financial system watchdog is unlikely to prevent a future crisis because it was unlikely to act decisively.
It doesn't end with Bullard. Minneapolis Fed's fearless new leader said last week “stripping the Federal Reserve of its supervisory role would needlessly put a Great Depression on the menu of possibilities for our country,” as if GD II wasn't engineered by the Fed in the first place.
Kocherlakota told the bankers that in a financial panic the Fed’s role is “to ensure that illiquid but solvent firms survive and ... to make sure that truly insolvent firms do in fact fail.”
He argued that a shrunken role for the Fed could limit its ability to act in that dual role in the future. “In the politically charged circumstances of a financial panic...the Federal Reserve would have no way to obtain reliable information... and would have no way to make appropriately targeted loans” to threatened banks.
Man, by the looks of things you'd think these guys were scared to lose their jobs or something, what gives?
You may have sat by and let your job get vaporized, America, but the Fed isn't about to go down like a bitch and will certainly keep swinging. Swinging like a nerd getting his lunch money beaten out of him, not like the large, low-hanging pair they used to possess before they let Hank Paulson loot the Treasury in the name of systemic risk management and financial doomsday, naturally. Those balls are long gone and all that's left is this declaration of war.