The proposed revamp plan for the US Federal Reserve System (FRS) involves more protection for consumers, consolidation of financial regulations and stringent capital requirements.
As part of the reform, the FRS is asked to become the main national regulator of the financial system over and above its current monetary policy role. However, concerns are raised by such a new role for the Fed, argues Fariborz Moshirian, Professor of Finance at UNSW.
Writing in an opinion piece published by the Australian Financial Review, Professor Moshirian said it is well known that the FRS was responsible for the housing bubbles prior to the current global financial crisis.
"Some have also questioned the way the FRS has handled the sub-prime credit problems. There is now well established literature that shows that a failure of national regulators in their responsibility was one of the main causes of the current global financial crisis. They overlooked highly leveraged financial institutions and their customers. They also gave contradictory political and bureaucratic incentives to both market and credit rating agencies," he said.
Read Professor Moshirian's full op-ed at the Australian School of Business website.
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