On July 9, 2009, Dean Thomas Cooley’s testimony was written into the record of a hearing on the role of the Federal Reserve before the House Financial Services Committee, Subcommittee on Domestic Monetary Policy, US House of Representatives.

He challenged a central tenet of the Administration’s proposal that assigns the duty of regulating systemic risk to the Federal Reserve. He argued:

• A new regulatory construct would be best suited to address system risk formed by “market failure” related to the size and/or interconnectedness of financial institutions.
• Imposing this role onto the Federal Reserve would deepen the institution’s connections with the Treasury, therefore threatening its independence.
• With this added responsibility, the Federal Reserve’s primary function – to conduct monetary policy and insure the integrity of the payments systems – may be compromised. 

Dean Cooley offered an alternative solution: use existing regulatory structures as resources. He proposed creating an independent institution, similar to the FDIC, with an expanded purview of all systemic institutions, including financial firms, hedge funds and insurance companies. In Dean Cooley’s model, systemic risk created by such firms would be priced into the fee for deposit insurance and into a fee for access to the Federal Reserve’s lending facilities.

Read Dean Cooley’s full testimony