I am not in favor of the Federal Reserve as a greater regulator over the financial system. Why? They can’t even do their own job right, or use the tools that they have today effectively.
Is the stock market too frothy? Let them adjust margin ratios.
Are they worried about the solvency of investment banks? Let them increase the level of capital that needs to be held against investment banks. Hedge fund worries? Same drill.
There should be a bright line distinguishing the regulated from the non-regulated financial companies. Capital requirements on loans from the regulated to the non-regulated shoul be very high, forcing the non-regulated entities to be mainly equity-financed.
Beyond that, the Federal Reserve has enough of a hard time with their existing mandate, balancing inflation, unemployment, and the health of the banks that they regulate. Adding additional balls for them to juggle will make their paralysis greater.
Better we should consider giving the SEC some real teeth, and funding it appropriately to do it. Let the next President put forth a good proposal to make it happen.