Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said Wednesday it would be a mistake to water down the central bank's supervisory power, warning it could damage the government's ability to react to the next crisis.
Lawmakers have been hashing out final touches on a financial regulatory package this week in the hopes of introducing a revised bill next week. Among the proposals being mulled over by lawmakers include stripping the central bank's supervisory powers or even putting new limits on the Fed's "lender of last resort power".
"Removing the central bank from a supervision role designed to provide totally current, firsthand knowledge and information will weaken defenses against recurrence of financial instability," said Lockhart, in a prepared speech before the New York Association for Business Economics. "Flawed defenses could be calamitous in a future we cannot see."
Lockhart said while it's unclear what the next trigger will be — or if it will happen — another crisis will occur at some point in the future, and pushing reform that does not ensure the Fed's role as a safety net will minimize its ability to prevent and manage future crises.