SUBSCRIBE:

Monday, July 21, 2008

Meltzer: Keep the Fed Away From Investment Banks

Alan Meltzer, economist and historian on the Federal Reserve thinks it's a mistake for the Fed to expand regulatory power to include investment banks. A clear rule on capitalization would suffice.

"In its 95-year history, the Fed has never made a clear statement of its policy for dealing with failures. Sometimes it offered assistance to keep the bank or investment bank afloat. Other times it closed the institution. Troubled institutions have no way to know in advance whether they will be saved or strangled. The absence of a clear policy statement increases uncertainty and encourages problem institutions to demand loans and assistance. Large banks ask Congress to pressure the regulators. Taxpayers pay for the mistakes."

It's an excellent piece. Read full article here from WSJ.