Academic

I've been talking with some very smart people on financial reform today, and the conversation raised three questions that will need to be answered during the reform debate:

• What is systemic significance?  The biggest development in the Obama proposal is the new authority for the Fed and the new list of systemically significant institutions, which would be subject to extra regulatory care.  But what makes an institution systemically significant?  Is it size or interconnection?  Is it limited to financial institutions, or any big business (like, say, auto companies)?  Do insurers belong?
• What is resolution authority and why does it matter?  The government has been pushing hard and fast for this - but it already has prompt corrective action, and what the Fed did to Bear Stearns?  Specified resolution authority could indicate when an institution will be bailed out, which might solve a moral hazard problem, but surely this authority must be flexibility too.
• Is there any way to justify a financial products regulator?  The press is positive about this, the people I hear from aren't so sure.  I'm also not superenthusiastic about this - it certainly isn't worth sacrifcing other things for - but a good regulator might make sure that financial products are transparent and disclosed, those being the sorts of values that we endorse in administrative law.  And think about this: credit card issuers make half of their revenues from fees.