Expanding regulatory power of central banks

There has been a controversial debate going on about whether or not to expand the power of central banks by giving them mandate to regulate and supervise private financial institutions (like banks). As the NYT reports there are many different pros and cons. Among the critics are Allan H. Meltzer (we discussed some of his views already here) and John B. Taylor (we mentioned him here), both distinguished monetary economists, yet each from a different angle. Meltzer is concerned about the Fed's proven inability or unwillingness to do something about financial stress; he therefore claims that the Fed is not the right institution to be charged with financial stability. Taylor says that expanding the Fed’s power would dilute its main mission of steering the economy, create conflicts of interest, reduce its credibility and jeopardize its independence.

From an economist's point of view it is still an open question how financial stability and macroeconomic stability are interlinked and whether a central institution should be in charge of both.