Abstract
Can one identify a "philosophy of regulation" that underlies the regulatory advocacy of the Fed under Chairman Greenspan? Although the Fed's advocacy on various matters may appear somewhat contradictory or, at least, philosophically heterodox, the Fed has behaved in a manner that is remarkably predictable, once one takes account of the political arena in which both regulatory and monetary policy are made. There is fairly straightforward logic to the Fed's regulatory advocacy. To understand it, one must consider the Fed as a political player in the Washington drama; as a creature of Congress subject to its oversight; as a competitor with other regulators for influence within the financial services industry and within the political realm; and as a prioritizing agent that had to decide which battles (monetary or regulatory) to fight-when, and how hard.
One lesson of this overview of Fed regulatory advocacy during the Greenspan years is that the algorithm of Fed advocacy (the decision process that decides which position the Fed will advocate) has not changed, although some of the specific policy advocacy has. In that sense, Chairman Greenspan did not change the Fed; indeed, it is probably more accurate to say that his personal advocacy was changed by being at the Fed. But that does not imply an irrelevance to his leadership. What emerges from a review of Greenspan's regulatory record is an appreciation of his skill as a Beltway warrior, particularly with respect to his success in facilitating the geographical expansion of banks, broadening bank powers, and securing a prominent role for the Fed under the Gramm-Leach-Bliley Act of 1999.
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