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  • Christina Romer on Financial Regulation

    It remains unclear whether Congress will push through financial regulation reform anytime soon, and what exactly that reform might look like ( Reuters outlines key differences between current House and Senate proposals ). Christina Romer , chair of the President's Council of Economics Advisers , spoke with Charlie Rose about some regulatory reform that she thinks would help, and about why she thinks regulatory reform is necessary now. Here's an excerpt from that interview: Watch the full interview here . Some Wall Street bankers are making it clear that they expect tighter regulation will drive up costs for consumers. Marketplace 's Bob Moon reported on JP Morgan Chase's anticipated cost adjustments and how it might affect shareholders and consumers. Here is his report :

  • Must Read: Sheila Bair NYT Op-Ed on Super-Regulator Idea

    In today's New York Times , FDIC Chair Sheila Bair weighs in on the notion that the US needs one "super regulator" to oversee all financial entities. Bair says the Obama Administration is taking the right tack in tightening regulation, but that shifting to one single regulator would not provide the control that proponents of the idea suggest, and, in her eyes, would make the system more susceptible to some of the problems that sparked the current recession. But most importantly, she writes, it would threaten the US banking system in general, and harm small banks in particular: The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the nonbank shadow financial system, and by using unregulated over-the-counter derivative contracts to develop volatile and potentially dangerous products. Consumers continue to face huge gaps in personal financial protections. We also lack a credible method for closing large financial institutions without inflicting severe collateral damage on the economy. The creation of a single regulator for all federal- and state-chartered banks would not address these problems. Rather, it would endanger a thriving, 150-year-old banking system that has separate charters for federal and state banks. Within this system, state-chartered institutions tend to be community-oriented and very close to the small businesses and consumers they serve. They provide loans that support economic growth and job creation, especially in rural areas. Main Street banks also are sensitive to market discipline because they know that they’re not too big to fail and that they’ll be closed if they become insolvent. Read The Case Against a Super-Regulator here .

  • Cleveland Fed Proposal for Regulating 'Systemically Important Financial Institutions'

    A group of researchers at the Cleveland Fed have a new idea for how to deal with the so-called "too big to fail" institutions. In language more suited to a Fed researcher, James Thomson --Vice President and Financial Economist at the Cleveland Fed--calls them " Systemically Important Financial Institutions ," and he writes in a paper that the first step is better defining these institutions: The purpose of creating a practical definition of systemic importance is to enable supervisors to discipline systemically important financial institutions. Understanding the nature and causes of systemic importance is the foundation for creating regulations, supervisory policies, and infrastructure that will rein in the associated systemic risk; in some cases, doing so sufficiently mitigates an institution’s potential systemic impact so that it would no longer be considered systemically important. Because any two firms could be deemed systemically important for unrelated reasons, a one-size-fits-all designation such as “too big to fail” is inadequate. Consequently, the approach taken here is to propose a means of classifying systemically important financial institutions (SIFIs). And the economists at the Cleveland Fed tout a three-tiered approach to regulating SIFIs. You can more about the approach here , and watch this helpful Drawing Board video: (Hat tip to Caitlyn Kenney at Planet Money)