The Fed's two main roles in the economy are (1) setting monetary policy and (2) regulating the financial system via both the regulation and supervision of Fed member banks (which are supervised by the regional Feds) and the regulation and supervision of bank holding companies (which are supervised by the Board of Governors, which Alan Greenspan has chaired since 1987). The structure and authority of the Fed in performing its monetary function is well understood and often commented upon (e.g., the timing, membership, voting rules, and press releases related to FOMC meetings). The Fed's role in banking regulation, or more broadly in financial regulation, receives less attention, is not as well understood, and has been much more subject to change over time.

The Fed plays an important role as a regulatory policy advocate in Washington, as a writer of regulations, and as a supervisor. It also represents the United States at the Basel Committee, which sets international prudential regulatory standards for banks. These regulatory functions are performed by the Fed alongside many other (sometimes "competing") financial regulators--the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the state banking and insurance authorities, as well as the courts. This is an activity that has occupied a great deal of time and energy at the Fed, as the structure and rules of the financial regulation game have changed dramatically and much more frequently in the U.S. over the past two decades than the structure and rules for monetary policy. . . .

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Charles W. Calomiris is a visiting scholar at AEI.