Fed critics will perform a Jon Sanders facepalm when they read in Bloomberg Businessweek about the central bank?s nearly year-old Large Institution Supervision Coordinating Committee:
Before LISCC’s creation, the Fed’s 12 reserve banks handled much of the day-to-day supervision of big banks and reported back to the Board of Governors in Washington, which sets the rules for bank holding companies. With LISCC, the Fed can tap its deep bench of more than 200 PhDs to figure out how a particular risk might affect the entire financial system or just a single bank.
The intense scrutiny of everything from compensation to stock buybacks shows the depth of the regulatory incursion into tasks normally handled by bank directors. E-mails revealed by the Financial Crisis Inquiry Commission showed the Fed even considered ousting Lehman Brothers Chief Executive Officer Richard Fuld and exercising “influence” over his successor. It’s too much, says Wayne Abernathy, executive vice-president of the American Bankers Assn. and former staff director of the Senate Banking Committee under former Senator Phil Gramm (R-Tex.). “What do these guys really bring to the table that the leaders of businesses don’t already know or have?” he says. “The answer is: the wrong set of incentives. Their incentive is to take no risk.”
