The Fed should not serve as a systemic regulator. Speaking against a key part of the administration's financial regulatory reform package, Reinhart calls for retaining the Federal Reserve's focus on monetary policy and its independence from Congress. The current regulatory framework encourages firms to become complex; Congress should appoint a financial stability committee with real powers to foster reform. Reinhart's views were shared by AEI visiting scholar Allan H. Meltzer, who also testified against widening the Fed's mission.
Chairman Dodd, Ranking Member Shelby, and Members of the Committee thank you for the opportunity to testify today.
No doubt, the American people expect significant remedial action in the aftermath of the extraordinary government support to financial institutions over the past year. Indeed, this is probably a generational moment in which this Congress will shape the financial landscape for decades to come. At the outset, however, we must remember that greater discipline does not always follow from more intricate oversight.
The Problem
In fact, complexity has been the bane of our financial system for decades and cannot
be the solution going forward. We have created an intricate, multifaceted terrain of opportunities through our financial regulations, tax codes, and accounting rules. There are multiple federal regulators and state alternatives. Different jurisdictions offer varied enticements in terms of favorable legal structure and tax treatment. And the tax code ranges across region and over time.
Vincent Reinhart is a resident scholar at AEI.
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Sunday, November 22, 2009
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