Funny thing -- the home page of the Wall Street Journal makes no mention of a speech Rep. Barney Frank, D-Mass., gave in Boston on Thursday, calling for Congress to consider morphing the Federal Reserve into a beefed-up "financial services risk regulator." You might think that a major new regulatory initiative mooted by the chairman of the House Financial Services Committee would be newsworthy, but not, apparently, to the Journal. The Financial Times, which has dutifully provided a forum for Frank's evolving thoughts on the financial crisis since last summer, has the scoop.

The basic issue is simple: The Federal Reserve Bank was created to make sure that systemic risk didn't bring down the banking system, but in the past few decades an entirely new shadow banking system has arisen that is essentially unregulated, but still depends on the Fed to bail it out when markets blow up. So Frank is on the money, so to speak, when he notes that "to the extent that anybody is creating credit, they ought to be subject to the same type of prudential supervision that now applies only to banks."

What exactly is he recommending?

Mr Frank on Thursday said that if entities such as investment banks wanted access to emergency cash, they would have to accept the supervision of a regulator that "could have enhanced tools to receive timely market information from market players, inspect institutions, report to Congress on the health of the entire financial sector and act when necessary to limit risky practices or protect the integrity of the financial system."

Sounds good to How the World Works, although I am given pause by Mark Thoma's observation that the Federal Reserve Board of Governors is now almost entirely staffed by Bush appointees, a cross section of the general public not known for its pro-regulatory sympathies.

Still, there's nothing like the threat of systemic collapse to focus the mind, no matter what direction your politics lean. New rules will be coming, everybody knows it. Will they fix all the flaws of capitalism? Of course not. But as an intriguing account of the Federal Reserve's creation (also pointed to by Mark Thoma) tells us, none other than Woodrow Wilson, the president who signed the Federal Reserve Bank into law (an act that he did not regret!), knew that incremental progress was our best hope.

Said Wilson:

We shall deal with our economic system as it is and as it may be modified, not as it might be if we had a clean sheet of paper to write upon, and step by step we shall make it what it should be.