Banking and financial supervision

Comments on Alan Kohler “Fed the wrong advice”, 18/06/2009, http://www.businessspectator.com.au//bs.nsf/Article/Fed-the-wrong-advice-pd20090618-T4SSP?OpenDocument&src=sph

While the Australian system is admirable in the wake of the global financial crisis because it has shown its remarkable success and resilience in the financial storms, it is the essence of the system, not the form of it really matters.

In that light, to either have one body like the Fed or RBA to have the dual roles of monetary policy and financial system supervision, or have two separate bodies like the current Australian system does not really matter. You could have a strengthened Fed that has two broad divisions, one for monetary policy and the other for supervision. I think that may be better than having two separate bodies.

It is regrettable that failed organisations have still been kept going in the Obama announcement. There should be accountability.

What is also important is that the Fed should realise that in its realm of monetary policies, it more needs to be prepared to expand its role in terms of price stability to also include financial system stability, however it is defined. Otherwise, the financial instability will inevitably spill over to economic stability.

There is a need for new economic thinking, new breakthrough in current policy frameworks.