Who Regulates Whom?

The Chicago Federal Reserve Bank's website has just posted an updated picture the US regulatory authority over payment, clearing, and settlement systems. It is a hot mess to say the least, a visual representation of why some are calling the Dodd-Frank law too complicated. Then again life and our financial plumbing are pretty complicated too.

Some definitions:

• A payment system is just what it sounds like: a way to transfer funds from one party to another.
• A clearing system, or clearinghouse, is an organization that takes on "counterparty risk" in a given transaction. If Party A sells a good to Party B through a clearinghouse, the clearinghouse vouches for Party B's ability to pay up.
• A settlement system is one whereby the actual good is transfered from one party to the next.

As you can imagine, the health of these organizations are vital to the proper functioning of the financial system as a whole.