Some lawmakers and experts question the wisdom of expanding the Fed’s authority, maintaining the body should mainly focus on monetary policy. Moreover, they voiced their disappointment with the central bank’s handling of bailouts thus far.
Says Congressman Edward Royce (R-California), a member of the House Financial Services Committee: “In my view, giving [the Fed] that much authority risks diffusing its focus on monetary policy and keeping the dollar stable. I believe the reason some economists are concerned about this particular provision is because they believe it will lead to a loss of strength in the dollar as you morph the Fed’s responsibility into this competing goal. Bailouts create winners and losers in the marketplace when government pull comes into the decision-making process. I’d like to see that removed from the legislation.”
The “too big to fail” concept also troubles Rep. Spencer Bachus (R-Alabama), who maintains that he agrees with 70% of what Obama outlined in his speech. “Whether a company is big or small, it should be allowed to fail,” says Bachus. “I don’t believe in too big to fail because that means too small to save and you’re unbalancing the playing field if people think big corporations have the government standing behind them.”
Brookings Institute fellow Douglas Elliot disagrees. “It’s clear after this crisis, that there are a number of large institutions that are capable of being the domino that starts the rest of the financial institutions to fall over,” he says, “so it’s definitely useful that the Fed and to a lesser extent the FDIC, will have greater authority to deal with troubled institutions, not just in the banking industry but also other related financial institutions,” Congress, which will have to approve any reforms, will almost immediately begin holding committee hearings. Obama is hoping the legislation will be ready for his signature by the end of this year.