Great Moments in Bureaucracy
The picture below, taken from a story in The Economist, shows that France, Germany, and Italy are among the nations with the most central bank employees (as a share of the population). In some sense, this is a dog-bites-man factoid. After all, is anyone surprised that Europe’s major welfare states have bloated public payrolls? But there’s more to this story. All three of these central banks ceased to have a monetary policy, starting back in 2002, when their nations adopted the euro. The mission is gone, but the bureaucracy lives on.
To be fair, the bureaucrats in these nations presumably are not sitting in quiet rooms playing minesweeper. Perhaps these central banks are responsible for other functions, such as financial regulation. Of course, given how governments around the world pursued policies that led to a financial crisis, perhaps all of us would be better off if bureaucrats did play computer games all day.
Filed under: Finance, Banking & Monetary Policy; International Economics and Development
Congress Grows Fed Up
The Wall Street Journal reported that Congress likes Fed Chairman Bernanke, but not the institution that he heads. There is growing consensus that the Fed needs to be reformed and restructured. Most notably, there are calls to strip the Fed of its supervisory authority. In practice, the new sentiment reflects the failure of the Fed to rein in risk taking by the largest banks.
The Fed is pushing back. One reserve bank president said that removing the Fed’s supervisory authority “would affect our ability to conduct monetary authority effectively.” He went on to say that without the supervisory authority, the Fed wouldn’t know enough about risks brewing in the economy. This argument is shop worn. The Fed had the authority. It fueled the housing boom with its monetary policy and failed to head off the banking crisis with its supervisory powers. And let us not forget the regional banking crises of the 1990s; the fallout of the Latin American debt crisis for Citibank; and others (e.g., the failure of Continental Illinois National Bank). All on the Fed’s watch.
Around the world, some central banks have supervisory authority over banks and some do not. There is no clear pattern for either monetary policy or bank regulation with respect to how the powers are structured and distributed. Other factors seem to matter much more. It would be useful to identify what they are.
Congress is moving a few deck chairs around as the ship sinks. No fundamental rethinking of bank regulation is occurring. The Fed is probably being made a scapegoat for Congress’s own failings. But that is how Washington works.
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