President Barack Obama has been waiting for this moment since his first day on the job - a return to a bipartisan spirit on Capitol Hill. That day arrived at last in June. Republicans and Democrats in Congress agreed that the Federal Reserve Board isn't doing much right. Depending on the politician, the Fed bullied Bank of America into buying Merrill Lynch, or it wasn't strict enough with Bank of America; it is flooding Wall Street and Main Street with so much liquidity that hyperinflation is just around the corner; it failed to see, warn about, and/or prevent the credit bubble, or keep the bubble from exploding.

And most of all, many in Congress contend, the Fed is much too powerful and should not be showered by the new powers reserved for it in the Obama Administration's efforts to re-regulate the financial sector.

Capitol Hill seems to be suffering from short-term memory loss. The Fed's alphabet soup of liquidity measures may well have prevented another Great Depression.

And the powers offered up in the administration's white paper, particularly the Fed's proposed role as the designated systemic risk regulator, are at the core of the administration's regulatory reform plan. Only the Office of Thrift Supervision would be eliminated. The Securities Exchange Commission, the Commodities Futures Trading Commission, and other regulatory fiefdoms beloved by various Congressional committees would remain untouched.

Under the plan the Fed would gain influence throughout the Byzantine warrens of examiners, inspectors, and reviewers, but would lose its consumer protection powers to a newly invented Consumer Financial Protection Agency. A new Financial Services Oversight Council chaired by the Treasury secretary would advise the Fed, and give policy advice.

Assigning the job of systemic risk regulator to the Fed is a natural extension of its role as monitor of discount window borrowing. "Monitoring solvency risk and liquidity risk are key elements of discount window analysis, and are also key components of macroprudential supervision," according to Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston. He believes that a systemic risk regulator should focus on changes in areas such as leverage and underwriting standards.

The ability to gather liquidity, funding, and trading information on an industry-wide basis, and make decisions quickly across regulatory silos is imperative. Under the existing regulatory structure, such information cannot be aggregated and analyzed. The Fed, with its legions of economists already focusing on macro issues, would be an ideal aggregator.

It's also important to successfully interact with international regulators, says Jaiden Iyer, managing director of the Global Association of Risk Professionals. "You have to have a single voice. If I had a choice, I would vote for the Fed," says Iyer.

Wayne Abernathy, executive vice president of financial institutions policy and regulatory affairs at the American Bankers Association, doesn't believe that all the financial institutions that would be under the Fed's purview need to be shoehorned into Fed-regulated bank holding companies, as proposed. And he sees risks in giving the Fed the systemic risk task. Such responsibility might divert its attention from its monetary policy mandate, and could raise concentration-of-power questions. But Abernathy generally supports the consolidation of systemic risk oversight into a single regulator. These concerns could be allayed if the oversight council is given real teeth, he says.

The government's response to last year's rolling crises was too ad hoc in nature, believes Harvey Rowen, chief executive officer of Starmont Asset Management, who calls the white paper a good starting point following a broad regulatory failure. "Bear Stearns, Lehman Brothers, AIG - people were meeting until two or three in the morning, without any roadmap," says Rowen.

The White House seems to be holding firm in its plans for the Fed. In a late June press conference, President Obama was asked to rate the Fed's response to the financial meltdown. "I think since the crisis has occurred, Ben Bernanke has performed very well," Obama said. "And one of the central concepts behind our financial regulatory reform is that there's got to be somebody who is responsible not just for monitoring the health of individual institutions, but somebody who's monitoring the systemic risks of the system as a whole. And we believe that the Fed has the most technical expertise and the best track record in terms of doing that."

One hopes the administration will maintain this stance, even in the face of bipartisan rancor. The world knows what life is like without a systemic risk regulator.

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