Wednesday, July 16, 2008

Simpler standards for investment banks

The Federal Reserve and Treasury Department have proposed new regulations for investment banks as well temporary access to emergency lending from the Fed.

However, Allan Meltzer observes,
Only in the weird world of Washington are mistakes rewarded with major new responsibilities. After mismanaging both housing loans and the dot-com mess, the Federal Reserve may now become responsible for supervising investment banks.
He offers a simpler, alternative prescription:
Investment banks don't need the Fed to regulate them. Some clear rules on capitalization would suffice.