Financial Regulatory Reform

This chapter first analyzes the financial regulatory reforms proposed by the Obama administration to prevent a recurrence of the 2008 financial crisis. These include constituting the Federal Reserve the “systemic risk regulator” of the entire banking system, covering all or virtually all types of financial intermediaries, including broker-dealers, investment banks, hedge funds, money-market funds, industrial loan companies, mortgage banks, insurance companies, as well as commercial banks and thrifts; and creating a Consumer Financial Regulatory Commission that would take over the consumer protection functions now exercised by bank regulators and the Federal Trade Commission and would be given comprehensive power to regulate consumer financial products, such as mortgages and credit cards. The chapter then identifies the major causes of the financial crisis: the profoundly flawed monetary policy and the ignorance and inattention of the regulatory agencies. It concludes by addressing the question of whether the officials complicit in the causes of the crisis should write the reforms.