Plosser specifically targeted non-banking financial institutions and highlighted insurance giant AIG as a type of firm that would need stricter regulation. The Senate Banking Committee has drafted a proposal to have the Federal Reserve oversee all banks and financial firms with assets excess of $50 billion. I think this is a very prudent move on the Fed's behalf as they attempt to regain control over the financial industry following the recent failures.
Tuesday, March 23, 2010
Fed's Plosser: better rules needed to manage risk
Philadelphia Federal Reserve Bank President Charles Plosser reaffirmed the sentiments issued by Chairman Bernanke during his Testimony released in February to tighten regulation surrounding financial institutions that neglected discipline because of the "too big to fail" image that they carried.
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I definitely agree that there needs to be better regulation on this topic. If banks and others in the financial market think they are "too big to fail" and that they will be bailed out if they make a mistake, they can take very risky moves.
ReplyDeleteOn one side I don't like the suggestion of the Fed being in charge of banks and financial firms with assets of more than $50 billion, but at the same time, if these institutions are going to come to the government for help they should be partially overseen by the government.
I actually think there should be less regulation. It's fine if the Fed oversees large institutions, but it shouldn't be responsible for them. "Too big to fail" makes the financial institutions less accountable for the risks that they take. They should be held more accountable and be more responsible for the investments they make.
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