A much-noted feature of the recent financial crisis is that none of the federal regulatory agencies saw it coming. They could respond to minimize the damage only after it happened -- at enormous cost. One reason for the lack of prescience is that the many of the large firms that overexposed themselves and had to be rescued because they were "too big to fail" (let's refer to them here as "TBTF") were not regulated by the agencies, and therefore were not on any early-warning radar screens. The agencies focused on firms under their legal jurisdiction; what happened outside their box was for someone else to worry about. This is one problem addressed by the Senate's Financial Stability Act of 2010, which Congress finalized on Friday. The major purposes of the legis...
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