ponsibility for open, public accountability of its intervention. As the Federal Reserve is now constituted, along with the duplication of regulatory agencies, the great danger of the theoretical foundations of the Fed policy is that it completely abstracts from the concentrations of political and economic power in banks and financial institutions. The theory assumes competition among thousands of small banks, but the banking system diverges dramatically from that theoretical model. Restraining the growth of bank reserves, monetary aggregates, or nudging up money rates will have virtually no impact on the operations of huge multinational banks that easily manage their nondeposit liabilities in global markets as the Fed pushes the structure of market rates up and down. This contemporary reality of concentrated power that has deeply eroded central bank monetary policy is never addressed in Congress, the White House, or at the Fed. Yet, increasingly, the power of multinational banks to evade national efforts to manage macroeconomic policy seriously undermines national goals (Kaufman, 1994). Once the huge multinational banks engage in financial speculation beyond the powers of the national central bank to control, the market itself does not impose much discipline. Moreover, since banks like Citicorp, Continental Illinois, and others have been deemed too large to be allowed to fail by policy makers in the Fed, the Treasury, and other government agencies, the banks really have boundless freedom. No longer can we talk about monetary policy in abstraction from bank regulatory policy. The two must go together. We can now learn from a whole string of financial crises and banking failures in the past twenty years to form intelligent judgments about more effective oversight coupled with monetary policy restraint (Wolfson, 1994). In the late 1970s and the early 1980s, regulators at the Federal Reserve and the comptroller of the currency acted bela...
