“If the government did not provide these bailouts or guarantees, then the market itself would ensure such organizations did not grow beyond their ability to attract capital,” he said. “It is only when fear is overcome by government guarantees that systemic risks can arise.”
While the Fed has sought recently to burnish its regulatory credentials by showing that it can be tough on big banks, proposing for the first time to regulate executive pay at the 28 largest firms, many legislators and analysts point out the Fed already had authority to regulate Citigroup Inc., Bank of America and other giant banks, but failed to foresee problems or take pre-emptive action while the crisis was developing.
Critics say the Fed may be too conflicted to crack down on big banks, since the Fed’s 12 reserve bank presidents are elected by top bank executives who typically sit on the reserve banks’ boards of directors.
Read more from the Washington Times
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