We Need a Systemic Risk Advisor, Not a Regulator

We Need a Systemic Risk Advisor, Not a Regulator

One policy of the Obama administration that has understandably attracted little public attention is its proposal to make the Federal Reserve a "systemic risk regulator." It's a well-intentioned attempt to prevent the kind of financial crisis that struck the nation last year and ended an unprecedented period of 25 years of low-inflation economic growth. But it's nonetheless deeply misguided, and it's heartening that both Democratic and Republican members of Congress have voiced intelligent skepticism.

For one thing, it's not clear that anyone can be expected to reliably identify "systemic risk." Financial institutions that invested...