Supervision Makes Good Policy, Says Fed’s Tarullo

Federal Reserve Board governor Daniel Tarullo yesterday strongly defended the Fed’s role in financial supervision as a prerequisite for good monetary policy.

Tarullo, testifying before the Senate Banking Committee, was asked whether the Fed should concentrate on making monetary policy and give its financial regulatory duties to some new agency.

By contrast, under regulatory restructuring proposals made by Treasury Secretary Timothy Geithner, the Federal Reserrve would be given enhanced supervisory authority.

Tarullo has not been a Fed governor for long, but he gave the kind of answer that Fed officials have given for many years whenever such questions have arisen.

“Anybody who has dealt with this crisis and indeed dealt with financial supervision on an ongoing basis will tell you that the whole point of the financial sector of our economy is that it reaches everywhere and affects everything,” he replied.

“And if one is looking to the central bank to perform the dual mandate given to it by the Congress — to try to maximize employment and achieve price stability — I don’t think there is any way to do that effectively without having an awful lot of attention to financial stability,” Tarullo said.

“And to achieve financial stability one has to have an influence upon the major kinds of financial activities that are going on in the economy, which of course are largely, though not exclusively, performed by the largest firms,” he said.

— Market News International

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