Eric S. Rosengren President and Chief Executive Officer Federal Reserve Bank of Boston

Over the past 70 years, what have been the significant successes and failures of supervisory policy in the US? Have supervisory failures affected macro stability? If so, what was the source of the error? What makes supervision so difficult? Have supervisory and regulatory policy kept up with innovations in the financial markets? Which regulators have been best at achieving their goals?

James A. Wilcox J. J. and M. B. Lowrey Professor of Business Haas School of Business University of California Berkeley

Paper: "How Has Bank Supervision Performed and How Might It Be Improved?" (with John O'Keefe)

Patrick de Fontnouvelle Vice President Supervision, Regulation and Credit Department Federal Reserve Bank of Boston

Presentation/Comments

Mark J. Flannery Bank of America Eminent Scholar Chair of Finance Warrington College of Business Administration University of Florida

If one could design the supervisory and regulatory structure anew to fulfill the objectives identified above, are multiple agencies required? If so, what should be the guiding principles for the division of labor across agencies? Has the international experience provided any evidence that competition helps attain the goals of supervision and regulation? As the lender of last resort for financial institutions and the economy, should the central bank play a key role in supervision and regulation and, if so, how? In particular, does the lender-of-last-resort function require that the Fed have supervisory and regulatory responsibilities over all types of financial institutions?

Jean-Charles Rochet Professor of Mathematics and Economics University of Toulouse School of Economics

Paper: "An Industrial Organization Approach to the Too Big to Fail Problem"

Edward J. Kane James F. Cleary Professor in Finance Boston College

Eugene A. Ludwig Chief Executive Officer Promontory Financial Group, LLC

Traditionally, economists have restricted the arguments in the Central Bank's objective function to inflation and the output gap; have recent events proven the need for one more goal? Specifically, should the Central Bank care about financial stability above and beyond its effect on inflation and output? What definition and measures should be used for "financial stability" ? Does financial stability affect the public's utility independently of these two traditional goals? How and why? Have there been times when addressing financial instability conflicted with traditional monetary policy? What was the Fed's response in those circumstances? Operationally, how would adding this third term alter the "Taylor Rule" ? How should the Fed trade off traditional macro policy and prudential supervision when they conflict (e.g. during financial crises): To forbear or not to forbear, and how?

Eric S. Rosengren President and Chief Executive Officer Federal Reserve Bank of Boston

Geoffrey M. B. Tootell Senior Vice President and Deputy Director of Research Federal Reserve Bank of Boston

Joe Peek Professor of Finance Gatton Endowed Chair in International Banking and Financial Economics University of Kentucky

Paper: "Is Financial Stability Central to Central Banking?"

Claudio E. V. Borio Head of Research and Policy Analysis Bank for International Settlements

Robert King Professor of Economics Boston University

In the recent crisis, the Fed used tools well beyond traditional discount window lending or open market operations. From the perspective of the relevant market participants, were these liquidity facilities viewed as effective in fulfilling the lender-of-last-resort function of the Fed? Should central banks be more creative in their use of these alternative policy instruments in the future? Would these programs have been more effective and less risky had the Fed been a supervisor of the institutions to which it lent, and if so what does that mean for supervision in the future?

Peter R. Fisher Managing Director, Co-head of Fixed Income BlackRock, Inc.

Fisher's Comments

James Hamilton Professor of Economics University of California, San Diego

Hamilton's Comments

Francesco Papadia Chair, Foreign Exchange and Monetary Market Contact Group European Central Bank

The Honorable Ben S. Bernanke Chairman Board of Governors of the Federal Reserve System

Full Address

If one were to start afresh, what guidelines and principles should shape the new regulatory and supervisory landscape? Most would agree that the broadest objectives of supervision and regulation are to promote both macroeconomic stability and the safety and soundness of individual institutions without hindering useful financial innovation. But how should supervision be organized to prevent the economy from becoming unstable and to minimize the effects on the financial system and the economy once a financial crisis does occur? Would supervision and regulation organized by type of financial activitity rather than type of institution better prevent crises in the future? Should non-depository institutions such as securities brokers and dealers, insurance companies, mutual funds, hedge funds be supervised and regulated according to the same set of principles? What should be the ex ante criteria that delineate the determinants (such as being "systemically important" ) of which institutions should be helped in the event of a crisis and under what conditions? What forms should the assistance to those institutions take?

Alan S. Blinder Gordon S. Rentschler Memorial Professor of Economics Princeton University

Paper: "It's Broke, Let's Fix It: Rethinking Financial Regulation"

Anil Kashyap Edward Eagle Brown Professor of Economics and Finance Booth School of Business University of Chicago

Sir John Gieve Chairman Vocalink

The panel begins with a cross-country comparison of supervisory and regulatory structures. In particular, how is supervision and regulation organized in other major developed economies? Have certain structures proved more successful than others, and how does the likelihood of success depend on the country's other institutional characteristics? This session should then discuss the implications of international capital mobility for supervision and regulation. Does increasing cross-border capital mobility pose any challenges to conventional frameworks for thinking about the role of supervision and regulation in fostering financial market stability? How can we best promote cross-border coordination and collaboration among regulators? Does the most recent episode reveal the need for an internationally coordinated lender-of-last-resort?

The Honorable Donald L. Kohn Vice Chairman Board of Governors of the Federal Reserve System

Full Remarks

Jean-Pierre Landau Second Deputy Governor Banque de France Kazuo Ueda Professor Graduate School of Economics University of Tokyo

Paper: "The Structure of Japan's Financial Regulation and Supervision, the Bank of Japan's Role and Monetary Policy"