Read this one by Binyamin Appelbaum and David Cho of The Washington Post. It's just a terrific piece of financial journalism for a popular audience.
For what it's worth, I agree with Felix Salmon that there aren't any good alternatives to the Fed when it comes to regulating big banks. I also think the Fed acquitted itself reasonably well once the financial system melted down last year. And I can't think of a better person to rethink the Fed's approach to bank regulation than Dan Tarullo, whom Obama appointed to the Fed board.
But boy did the Fed screw up in the run-up to the crisis. (And far more than anyone else I blame Greenspan--who really imposed his will on the institution during the 18-plus years he ran it.) Appelbaum and Cho will send the acid gushing into your stomach.
Update: Just to illustrate what we're talking about with Greenspan, the piece notes that:
The hands-off approach also was a matter of philosophy. Rather than scrutinize banks directly, the Fed decided to push them to appoint internal risk managers who imposed their own checks and balances. Regulators focused on watching the watchmen. Bernanke's predecessor, Alan Greenspan, said that banking was becoming too complicated for regulators to keep up. As he put it bluntly in 1994, self-regulation was increasingly necessary "largely because government regulators cannot do that job."
Greenspan revisited the theme in a 2000 speech, saying, "The speed of transactions and the growing complexities of these instruments have required federal and state examiners to focus supervision more on risk-management procedures than on actual portfolios."
Hmmm...