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Fed Reform? Not So Fast.

Friday, 13 Nov 2009 | 2:00 PM ET

'Reform' is the central focus of Washington these days.

On Tuesday, Senate Banking Committee Chairman Christopher Dodd called for new sweeping government powers to prevent another economic collapse, protect consumers and dismantle failing institutions.

Inside the lengthy 1,136 page reform…Dodd outlined moves to strip the Fed and other regulators of their powers to regulate banks, handing the job to a single agency.

Because of that…many question, is this the right move?

Maria Bartiromo spoke exclusively with Richmond Federal Reserve Bank Chief Jeffrey Lacker about that proposal. As the decision-maker for the Richmond Fed, Lacker said it is "important to get the mix of market discipline and regulation right." Lacker told Bartiromo he "thinks most people would agree the Federal Reserve's actions in this upset have been critical to the recovery and now the question turns to what happens when the stimulus is gone."

Lacker on Regulatory Reform
Insight on Chris Dodd's regulatory reform bill, with Jeffrey Lacker, Richmond Federal Reserve Bank president and CNBC's Maria Bartiromo.

Dodd's bill would take away the Fed's ability to monitor credit cards and mortgages and establish a new "Consumer Financial Protection Agency." Over the past several months, Lacker has said the government needs to rein in its safety net, not expand it. He has even vocalized "if no corrective action is taken to close that gap, the next economic expansion will likely see more excessive risk-taking and end with more firms in financial distress."

Outside of regulation, Lacker told Bartiromo the economy is in pretty good shape. Lacker said 'manufacturing has picked up, foreign trade has looked good and the consumer seems to have found footing."

When asked about the growing worries in the commercial real estate market, Lacker told Bartiromo "I think it is manageable for the system as a whole. There are a lot of differences across banks in the experiences, the strategies they adopted, the strength which they executed on commercial lending strategy. The weaker ones will experience losses. But there is enough by the way of capacity to see us through this."

Donna Burton contributed to this article.

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