Chris Dodd‘s financial regulatory reform plan goes too far in my view in stripping away powers from the Fed. It makes sense to take away the Fed’s ability to bail out individual companies under 13.3 once there is a special resolution entity in place to manage financial failures. But taking away the Fed’s banking supervision role risks robbing it of an information flow vital to deal with financial stability threats. And giving systemic risk powers to a new agency is a recipe for confusion or worse.

Why? Because an economy with a systemic risk or macroprudential regulator and a separate central bank would be like a car with two drivers. Read more