It is, nonetheless, hard to see why this document should have so rudely disturbed Fischer’s equipoise. Perhaps he was giving us a glimpse of more fundamental disagreements on financial regulation at the heart of the administration. Or perhaps the Fed itself fears that regulatory rationalization is code for some cutback in its own responsibilities, which have been expanded remarkably since the crisis.
It would be unfortunate if the Fed’s opposition to change prevented a debate on whether, ten years on, every one of the changes made – often in a tearing hurry – make sense, both individually and collectively. After all, many changes in the competitive environment within which banks operate – new payment systems, peer-to-peer lenders, shadow banks, and the rest – require careful analysis and thought.
So the US Treasury is surely right to open a debate. And it has done so in a thoughtful fashion. Central bankers should take care not to suggest that there is nothing to discuss, that nanny knows best and the children should not ask awkward questions, like “Why?” That was never a good way to persuade a teenage boy to keep his room tidy. It will not work for lawmakers or banks, either.
Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is chairman of the Royal Bank of Scotland. He was director of the London School of Economics (2003-11) and served as deputy governor of the Bank of England and director-general of the Confederation of British Industry.