What Powers for the Federal Reserve?
Feldstein, Martin. 2010. "What Powers for the Federal Reserve?."
Journal of Economic Literature,
In this essay, I explain my reasons for the following policy recommendations: (1) The
Fed should continue to manage monetary policy as it has in the past, should act as
the nation's lender of last resort, should fully supervise the large bank holding companies
and their subsidiary banks, and should be given resolution authority over the
institutions that it supervises. (2) While a council of supervisors and regulators can
play a useful role in dealing with macro prudential risks, it should not replace the
central role of the Federal Reserve. (3) The virtually unlimited lending powers that
the Fed has recently exercised in creating credit and helping individual institutions
should be restricted in duration and subjected to formal Treasury approval backed
by Congressional preauthorization of funds. (4) The Fed's capital rules for commercial
banks need to be strengthened by replacing the existing risk-based capital
approach with a broader definition of risk and the introduction of contingent capital.
(5) Subjecting mortgage lending to a broader range of Federal Reserve regulations
and allowing the Fed to deal with nonbank creators of mortgage products would
be better than the creation of a new consumer financial protection organization.
(JEL E52, E58, G21, G28)
Article Full-Text Access
Feldstein, Martin (Harvard U)
E52: Monetary Policy
E58: Central Banks and Their Policies
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation