Nobel winner Stiglitz warns of continuing risks in financial system

The United States faces greater systemic risk today than it did a year ago, according to economist Joseph Stiglitz, a Nobel laureate and professor at Columbia University's graduate business school. "Structurally things are worse,” Mr. Stiglitz said yesterday during a webcast, "The New World of Financial Regulation," sponsored by law firm Bingham McCutchen LLP. The government needs expanded powers to shut down failed firms, he argued. "If [institutions] are too big to fail, they're too big to [exist]," he said. To Mr. Stiglitz, making the Federal Reserve Board the nation's systemic-risk regulator — a proposal made by the Obama administration as part of its regulatory reform plan — is a bad idea. "The Fed had more powers than it used before the crisis," he said. "Saying that we're going to give them even more powers not to use doesn't seem to me to be the way to solve the problem." Roberta Karmel, a professor at Brooklyn Law School and a former member of the Securities and Exchange Commission, is of a similar mind. Ms. Karmel said during the webcast the Fed should not be the systemic risk regulator because giving it that authority would pose a conflict with its role overseeing monetary policy. "There is a serious conflict between prudent regulation and the responsibility for making sure that individual financial institutions have adequate capital, and are adequately financed and are not on the verge of collapse," Ms. Karmel said.