Systemic risk regulator

The Times reports that

The Senate and the Obama administration are nearing agreement on forming a council of regulators, led by the Treasury secretary, to identify systemic risk to the nation’s financial system... The effect would be to diminish the authority of the Federal Reserve, whose regulation of banks has been criticized for failing to head off the problems... Though some in the Fed continue to push for the central bank to be the overseer of systemic risk, the chairman, Ben S. Bernanke, is willing to go along with a Treasury-led council.

It's important that the Fed maintain its regulatory role in the banking system - the authority to regulate banks provides the Fed with timely information about the condition of the banking system that is useful for the conduct of monetary policy. But I also think it's a good idea to put the Treasury rather than the Fed in the lead role of systemic risk regulator. It's a matter of political accountability. In the 2000s monetary and regulatory policy conducted by the Fed, SEC, FDIC, and other regulatory agencies created a dangerous situation in financial markets. Given the political economy of financial policy, these issues were not going to be dealt with by passing off bits and pieces of them to the regulatory agencies where they can be "handled" outside public view. I think there's a slightly greater chance that they'll be taken seriously if they're given a greater public profile. Even if that's not the case, at least centralizing authority at the Treasury Department will make the president directly, publicly accountable.