No federal bank supervisor did an effective job of recognizing and dealing with systemic risk over the past several years, but I believe this was a result of a weakness in the current supervisory and regulatory system rather than a weakness of the supervisors. The current system divides bank supervisory and regulatory authority among the Fed, the Comptroller of the Currency, the FDIC and state bank supervisory agencies with a resultant lack of authority and accountability for systemic risk and of the means to collect and share the broad range of bank and nonbank information necessary to identify, assess and address systemic risk. Not surprisingly, this division of authority has also resulted in an inadequate degree of transparency.

On July 22, the Obama administration delivered to Congress proposed legislation that would address systemic risk by granting the Fed supervisory and regulatory authority over Tier 1 financial holding companies and establishing a Financial Services Oversight Council of financial supervisors "to identify systemic risks and improve interagency cooperation." This proposal is currently the subject of intense debate among the federal bank supervisors and members of Congress.

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