The head of the World Bank will deliver a speech at Johns Hopkins today that will question the wisdom of the Obama administration’s plan to give the Federal Reserve more power over the largest banks. Instead, Robert Zoellick will argue, that power should go to the Treasury.
Zoellick’s argument, as reported by the WSJ, will turn on two points:
- The Federal Reserve, like many central banks around the world, failed to detect the housing bubble or anticipate the financial crisis. Indeed, for much of the past couple of decades the Fed has said that while it can deal with fighting inflation or battling recessions, it cannot detect or deflate asset bubbles. How are we supposed to believe that it can now effectively regulate too big to fail banks.
- Empowering the Federal Reserve over banks places too much power in the hands of a largely unaccountable bureaucracy. The Treasury, on the other hand, is controlled by the president and is therefore democractically accountable. It is also likely to be far more responsive to lawmakers than the Federal Reserve.