Federal Reserve Chairman Ben Bernanke appears doomed to repeat that institution's past failings as the top regulator of our financial system, Politico's Jesse Eisenberg observes.  How's that?  Well, for one thing, at the Fed's first ever news conference last week, banking regulation was never touched upon in the discussion.

Mr. Bernanke’s opening remarks were about monetary policy and the economy.   When answering questions, he repeatedly referred to the Fed’s “dual mandate” - (i) to keep inflation low and stable;  and , (ii) to maintain full employment for the economy.  Mr. Eisenberg refers to, what he calls, the Fed's 'true dual mandate', which is:  (i) to steward the economy;  and, (ii) to regulate the financial system, making sure banks are safe and sound.

        Fed's Past Mistakes.   Prior to the financial crisis, the Fed was a miserable failure as a regulator - it was a creature of the banks, not a watchdog.  Mr. Eisenberg saw the news conference as an opportunity for Mr. Bernanke to demonstrate what the Fed had learned from the crisis about banking oversight. That didn't happen.

Yet, the Dodd-Frank Reform Act endows the Fed with an even greater regulatory role, in that the new consumer financial products regulator is housed within the central bank.  The Fed also now officially oversees investment banks, which it had to rescue during the crisis.  Congress broadened delegated the Fed with authority over nonfinancial institutions deemed “systemically important.”  And, Congress created a new role, the “vice chairman of supervision,” to raise the prominence and importance of its responsibility.  [That position remains unfilled.]  

        Regulation is Not Sexy.   And who can blame the Fed - banking supervision is not viewed as exciting or sexy - that description is "reserved" for monetary policy.  And so, that’s where most of the resources and attention goes - by the chairman and the board.

 “Either expressly or implicitly, the Fed permeates every part of the Dodd-Frank reform.  Yet there is no indication that the leadership of Fed understands or is undertaking its new role as systemic risk regulator. It’s not on the mind of the Fed chairman.”   - -  Dennis Kelleher, chairman of Better Markets, a new D.C. lobbying group that aims to be a Wall Street watchdog. 

To continue reading, go to:   [NYT Dealbook, 5/4/11, "Greater Power Over Wall Street .."]