In the text of a speech he is to deliver Monday at the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University, Mr. Zoellick says central banks around the world fell down as regulators -- and that the Treasury, which is more accountable to Congress, should be given the authority to regulate big financial institutions, not the Fed.
"It will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority," he says. "My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury is an executive department, and therefore Congress and the public can more directly oversee how it uses any added authority."
Mr. Zoellick, among other positions in the U.S. government, served in various posts in the Treasury from 1985 to 1993.
"Central banks failed to address risks building in the new economy," Mr. Zoellick says. "They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy. They argued that damage to the 'real economy' of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. They turned out to be wrong."
Mr. Obama's Treasury has recommended that the Fed get oversight of too-big-to-fail financial institutions in an overhaul of financial-services regulation. One argument against giving such power to the Treasury is that it doesn't have the resources for the job. But lawmakers have been resistant to giving the Fed more power. Treasury Secretary Timothy Geithner served as president of the Federal Reserve Bank of New York before joining the Obama administration