The Fed Must Continue to Supervise Banks

by Richard F. Syron
January/February 1994

As we examine ways to restructure government to provide better services at lower cost, supervision and regulation of banks is a prime candidate. The current supervisory patchwork, with its overlapping and redundant functions, raises costs for banks and their customers.

Richard F. Syron, President of the Federal Reserve Bank of Boston, agrees that one federal agency should oversee each banking institution. He believes, however, that a recent proposal to eliminate Federal Reserve System involvement in bank regulation and supervision would impede the Fed's ability to carry out its mission as the nation's central bank: to ensure financial stability, to implement monetary policy, and to oversee a smoothly functioning payments system. He describes the strong links between bank supervision and the Fed's other central bank responsibilities, using recent New England experience to highlight the role of the Fed in preventing and containing panics and other banking crises.

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