UPDATE 1-Fed’s Warsh says more regulation might hurt US economy

WASHINGTON, Feb 2 (BestGrowthStock) – U.S. Federal Reserve Board
Governor Kevin Warsh said on Tuesday that financial reform
efforts that focus narrowly on expanding regulation could
stifle the economy.

His comments, published in a Financial Times newspaper
opinion piece, come as President Barack Obama pushes for
tighter rules that would attempt to limit risky behavior by

Warsh described attempts to strengthen the system as
“worthwhile,” but said time would be better spent reviewing the
role of government-sponsored mortgage finance agencies Fannie
Mae and Freddie Mac.

Banks, he said, should not be treated like
heavily-regulated utilities.

“In a global economy, big is not bad,” Warsh wrote.”The
U.S. economy runs grave risks if we slouch toward a
quasi-public utility model.”

The Obama administration’s efforts, led by senior White
house adviser Paul Volcker, would look to reinstitute the
separation between the speculative trading of investment
brokers and the desposit-taking and lending that is the
bread-and-butter of commercial banks.

Volcker testified before the Senate Banking Committee on
Tuesday, arguing that while his proposal would not have
prevented the collapse of firms like Lehman Brothers and AIG,
it could help avert future crises.

“I may not live long enough to see the next crisis but my
soul will come back to haunt you,” the 82-year-old Volcker

Warsh, however, spoke of a return to market discipline
which he maintained could only take place if government became,
less, not more, engaged in the banking system.

“The specter of government support threatens to confuse
price signals and create a class of institutions that operate
under different rules of the game,” he said.

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UPDATE 1-Fed’s Warsh says more regulation might hurt US economy