The following is an excerpt from Heritage Foundation Research Fellow Norbert Michel’s recent piece in Forbes:
Last Friday I had the pleasure of testifying at a Senate hearing. The topic was “Improving Financial Institution Supervision: Examining and Addressing Regulatory Capture.”
“Regulatory capture” refers to a common phenomenon: individuals serving as regulators come to identify with the firms they regulate at least as much as with the agencies that employ them. Thus, the regulator becomes “captured” by the industry it is supposed to be supervising.
Rather than force the NY Fed’s managers to go through a few management seminars, let’s try the following:
- Get rid of the Fed’s emergency lending authority.
- Close the Fed’s discount window.
- Scrap the Fed’s primary dealer system, and let all banks take part in open market operations.
- Transfer the Fed’s regulatory authority to the FDIC and/or the OCC.
- Give financial firms total regulatory relief if they convert from a corporate entity to a partnership
The best way for the Federal Reserve to contribute to financial stability is to focus on monetary stability. This list of reforms would get us going in that direction, and that’s free enterprise.
To read the piece in its entirety, click here.