The Wall Street Journal reports that Treasury Secretary Tim Geithner laid into federal regulators last Friday with an "expletive-laced critique" of their objections to the administration's financial regulation plan. This comes after a few weeks of complaints from existing agencies that have focused mainly on protecting their own turf. Geithner, meanwhile, is frustrated that he has to fight battles in two directions: one against the financial services industry, which doesn't want any of the administration's proposed changes implemented, and one against the status quo in Washington, represented by congressional barons and the heads of independent regulatory agencies, who don't want to see their own power diminished. This isn't the first time he's been caught cussin' over the issue. (Frankly, it's nice to see the controlled Geithner let loose a little.)How seriously should we take these criticisms? On the Consumer Financial Protection Agency, which has come under fire from the Office of the Comptroller of Currency and the Federal Reserve, it's almost a no-brainer that we have an agency solely dedicated to ensuring that the consumer credit markets are run fair and square, so that we don't see ordinary citizens given the short shrift by financial regulators ever again. Even FDIC Chair Bair's criticisms are less policy-oriented and more concerned with who executes said policies. But should the other flash point -- the administration's plan to give the Federal Reserve new powers to monitor systemic risk and impose onerous regulations on banks that are too big to fail (TBTF) by dint of their size or interconnectedness -- worry progressives more? Probably not. Although concerns about the specifics of the administration's plan are reasonable -- why not simply limit the existence of TBTF firms rather than disincentivizing them through regulations? -- these are not the concerns of the regulators. They don't seem to care so much about the mechanisms as making sure they have a hand in making decisions.Treasury's argument that the system needs a single point of accountability to avoid the confusion that wracked the government last fall seems spot on to me. While the Fed is perhaps not the best suited to that job, and I also buy Tyler Cowen's position that it's the best possible choice. The key seems to be making sure that the Fed has more transparency at the end of this process than at the beginning, that the Fed's organizing structure be overhauled to eliminate conflicts of interest with the banks, and that we appoint people to the Fed who are likely to be strong independent regulators. The role of the broader regulatory council will be important for providing oversight and guidance, but it could also create a bureaucratic minefield that could contribute to regulatory arbitrage, defeating the purpose of these reforms completely. -- Tim Fernholz
