Traditionally Americans have opposed the establishment of single governmental body with jurisdiction over all aspects of the financial system. Instead we have favored a decentralized system with different regulatory agencies for different types of financial activities and institutions.

This approach has just ended, with little notice. The Dodd-Frank Act has created a single government body, the Financial Stability Oversight Council, with jurisdiction over all major financial activities and firms. This 180 degree change in policy is bound to have a dramatic impact on regulators, financial firms, and the economy as a whole

At the start of the last century there was no federal regulatory system. Therefore during the Panic of 1907 rescues of commercial banks, trust companies, securities firms, the New York Stock Exchange and New York City were organized by a private individual, J. P. Morgan.

There was widespread recognition that what was needed was a regulatory system to deal with future financial panics. As Senator Nelson W. Aldrich put it, legislation was needed because "we may not always have a Pierpont Morgan with us to meet the country's crisis."

There ensued a debate over what type of regulatory system should be put in place.

Aldrich developed a plan to create a powerful central bank, based on the German model, with regulatory authority over commercial banking, investment banking, and the stock market. The Aldrich Plan was introduced in Congress in 1912.

However, Congress did not enact the Aldrich Plan. Instead in 1913 Congress created the Federal Reserve System, which was given regulatory authority only over commercial banking.

After the 1929 crash Congress further fragmented regulation. The Glass-Steagall Act prohibited banks from engaging in securities activities and securities firms from engaging in banking activities. The Securities and Exchange Commission was created to regulate securities firms. The Fed and other bank regulators continued to regulate banks.

There were those who opposed these developments and called for centralization of regulatory authority in one government body.

In 1938, Professor George W. Edwards, chairman of the department of economics at City College, stated that there was a: "need of unifying the various governmental agencies which regulate the operations of security capitalism particularly the Federal Reserve, the Federal Deposit Insurance Corporation, the Comptroller of the Currency…the Securities and Exchange Commission and the Treasury Department. It would be well if all these federal agencies were unified into a Federal Finance system which would exercise all the powers now performed by these separate agencies."

Moreover, Edwards was clear that "the organization of the Federal Finance system should be built around the present Federal Reserve system." [George W. Edwards, The Evolution of Finance Capitalism, London, Longmans, 1938].

Beginning in the 1960s, bank regulators issued rulings that chipped away at Glass-Steagall barriers, and in 1999 Congress repealed the act. A single firm could now engage in all types of financial activities.  But the system of decentralized regulation remained in place: each activity conducted by a financial firm (banking, securities, insurance) continued to be regulated by a different "functional" regulator.

Following the 2008 financial crisis Congress enacted the Dodd-Frank Act. Most commentary on the act has concerned the substantive rules that the act sets forth or that it directs agencies to adopt, for example, the Volcker Rule dealing with proprietary trading by commercial banks.

What generally has been overlooked is that the Dodd-Frank Act establishes the all-powerful central bank that Senator Aldrich proposed one hundred years ago.

Specifically, the act created the Financial Stability Oversight Council. The council has ten voting members, most of whom head banking agencies, and is chaired by the Secretary of the Treasury. The council is to monitor risks to the financial system. The council has authority (1) to make recommendations to regulatory agencies to impose more stringent regulation; and (2) to place a non-bank financial company under the supervision of the Federal Reserve Board if it appears that the company poses a threat to U.S. financial stability.

The council is moving on both fronts. Individual members of the council have recommended to the SEC that it impose more stringent regulation on money market mutual funds. The council has adopted a rule setting forth criteria it will use to designate non-bank financial firms as systemically important and thus subject to supervision by the Fed. The first designees are likely to include firms that perform bank-like functions, so-called "shadow banks." The list of designated firms is bound to grow over time.

In short, the Dodd-Frank Act has departed from the traditional American adherence to decentralized regulation by creating a single government body with jurisdiction over all major aspects of the financial system.

This change will have major impact on regulatory agencies, financial institutions, and the economy as a whole. As the council and the Fed continuously expand their reach, they will crowd out lesser specialized agencies such as the SEC and the CFTC. The council and Fed will prize safety and stability over creativity and risk-taking. This will make it more difficult for financial giants subject to council-Fed regulation to innovate. On the other hand, it will provide greater opportunities for smaller "unregulated" firms, which will face less competition from large firms subject to council-Fed control.

If Senator Aldrich could be with us today, no doubt he would be pleased that after one hundred years the Aldrich Plan finally has been put in place. However, he would be surprised that so little attention has been paid to this sea change in national policy.

Matthew P. Fink is the former president of the Investment Company Institute and author of "The Rise of Mutual Funds: An Insider’s View," Oxford University Press (2d edition, 2011). He may be reached at