Federal Reserve Likely To See More Control After Regulatory Shakeup
Later this week, Treasury Secretary Timothy Geithner will unveil his regulatory reform plan before Congress. How much it will resemble his predecessor, Henry Paulson’s so called “blueprint for regulatory reform” remains to be seen.
Regulatory reform of the financial services industry could take quite some time, with the current emphasis by the administration on healthcare reform. However long it takes, the outcome will likely see the Federal Reserve exert a firmer control on the economy.
We may see some of the broad powers that the Fed has already used during the financial crisis become more institutionalized. Also, some of the powers that are currently under the control of the Security and Exchange Commission(SEC) may also pass into their control.
The Fed is expected to gain regulatory power over institutions that are deemed systemic risks to the rest of the economy. The SEC received a black eye when it failed to spot serious flaws in a number of financial institutions, most notably Bear Stearns and Lehman Brothers.
Other agencies likely to gain increased regulatory powers are the Federal Deposit Insurance Corporation and the Office of Thrift Supervision. While much of the focus lately have been on the nation’s largest banks, hundreds of smaller regional banks face difficulties and a number of them are expected to fail in the next few years.
Ultimately we could see a considerable rollback of much of the deregulation that has occurred in the previous two decades and it will likely shape the financial landscape for years to come.
