Confining the Federal Reserve’s supervisory role to only the largest firms will, I fear, inadvertently make the Federal Reserve the Central Bank to the largest firms while disenfranchising the other 6800 banks. The map tells the story. When Congress created the Federal Reserve nearly a century ago, it gave us a decentralized system that spanned the continent.
From a statistical perspective, the economy appears to have taken a permanent hit to the output level. The second noteworthy feature illustrated in the figure is that the CBO has revised its estimate of the path of potential GDP numerous times since the beginning of the recession. Specifically, almost every year since 2007, it has revised down potential GDP.