By John M. Berry
John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.
So the watchdog can bark after all. Adair Turner, chairman of Britain’s Financial Services Authority, says the financial sector has “swollen beyond its socially useful size”. That is a striking statement for any financial regulator, particularly one that counts promoting London’s financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.
The Financial Times reports that the Federal Reserve is taking on another mammoth undertaking – reform of the $4.5 trillion repurchase agreement market, which acts as the very plumbing of the U.S. financial system. And the central bank should. This plumbing is looking creeky after the Lehman Brothers failure exposed some big cracks that had threatened to destabilize global markets.
It’s pretty clear the Federal Reserve is going to emerge as the big winner in the Obama administration’s proposed overhaul of the financial regulatory system. But any grant of new powers to the Fed must come with legislation requiring greater accountabilty from the nation’s central banker.