Fed, intact and then some in reform bill

"Basically, they ended up winning almost on everything that counts," said Laurence Meyer, a former Fed board governor who now works at Macroeconomic Advisers LLC, a consulting firm.

The Fed, as such, survived a prolonged debate on how to fix the financial system, despite harsh criticism early in the debate that it, among others, failed to anticipate the financial meltdown or stop it from happening.

There was talk then of paring down the Fed's powers. The bill passed by Congress, however, is the first significant expansion of Fed powers since the Employment Act in 1946, which gave the Fed its modern-day focus on employment, The Wall Street Journal reported Friday.

The risk now is that if there is another financial meltdown, it will be hard to avoid blaming the Fed for some form of complicity or for falling asleep at the job.
"If I were the Fed, I'd be seriously worried about being left holding the bag," said Professor Anil Kashyap at the University of Chicago Booth School of Business.

In the bill, the Fed becomes the chief regulator for companies so large their failure would create chaos in the marketplace -- even businesses that are not banks -- and joins a council of regulators to guide such businesses through orderly liquidations if necessary.

It will also regulate previously independent hedge funds and set fees that stores will pay banks for customers who use debit cards.

The Fed's new roles could also deepen its involvement in political controversies. Seen previously as clinical, bipartisan and above the fray, the Fed's new positions "could give a lot of people reason to interfere," said Thomas Cooley a professor at the New York University Stern School of Business.

Copyright 2010 United Press International, Inc. (UPI).