How Financial Regulation Can Be Market Friendly

June 1 (Bloomberg) -- The structure of financial regulationin the U.S. resembles sedimentary rock: Each layer is the legacyof a crisis, but there is nothing binding the layers together.

The Federal Reserve was created in 1913 to address theliquidity problems that occurred during the panic of 1907. TheFederal Deposit Insurance Corporation was instituted in 1933 toprevent the kind of bank runs that had forced more than 5,000banks to close in the early 1930s. The Securities and ExchangeCommission came into being in 1934 to prevent the stock-marketmanipulations of the 1920s. The Office of Thrift Supervision wascreated in 1989, after the savings-and-loan crisis of the late1980s. And the 2010 Dodd-Frank Wall Street Reform and ConsumerProtection Act, which brought us the Financial StabilityOversight Council, was the result of the most recent financialcrisis.