NEW REGULATIONS ON THE INVESTMENT AND BANKING

New Regulations on the Investment and Banking

New Regulations on the Investment and Banking

The Fed's unparalleled actions to evade a Bear Stearns bankruptcy offer a prima facie case that the regulation of investment banks must be expanded. Bernanke and Paulson agree that any new regulation must be integrated with strong market discipline. But for market discipline to be effective, investment banks must be allowed to fail. It will be difficult, if not impossible, for the Fed and the Treasury to square these two goals under the current regulatory regime. Indeed, market discipline during ...