WASHINGTON – Federal Reserve Board Governor Daniel Tarullo on Tuesday called for stricter policies for the nation’s largest financial institutions and stronger enforcement from regulators.

Tarullo, who has overseen the implementation of the Dodd-Frank Act, said he has analyzed several regulatory proposals currently being debated in policy circles and pointed out that there is relatively little recent academic research on scale and scope economies in the financial sector – and almost none pertinent to the operations of large financial conglomerates.

“The largest, most-complex institutions should be subject to stricter regulation precisely because they are more complex and because their failure would have greater negative externalities for the financial system and the economy more generally,” Tarullo said during a conference held at the Brookings Institution.

Scale economics exist where average costs decline as a product or service is provided in larger quantities. Scope economies exist where average costs for a product or service are lower if it is produced jointly with another product or service.

Speakers had a heated discussion during the conference about Dodd-Frank, the sweep overhaul of regulation passed in 2010 in the wake of the financial crisis.

“Dodd-Frank is radical only in its length,” said Marcus Stanley, policy director at Americans for Financial Reform. “Essentially what Dodd-Frank does is it goes through and it has a section addressing everything you would want to address. But then, each time when it addresses something it does so through a vague half measure that leaves enormous discretion to regulators.”

Dodd-Frank refers to a comprehensive and complicated piece of financial regulation born out of the Great Recession with the intention of preventing another collapse of a major financial institution. The bill contains some 16 major areas of reform and hundreds of pages. Much of it has yet to be implemented.

“It’s kind of a ‘Chinese menu’ approach — we are going to take a little bit of everything, and we are gonna let the regulators figure out how exactly it’s been done,” Stanley said.

Charles Calomiris, professor from Columbia University Graduate School of Business, used a cartoon published by New Yorker on March 9, 2009 to illustrate the current situation — “Regulation is a continual contest between regulates and less-well-paid, less- well-informed regulators.”

“My point is anybody who wants to be a regulatory reformer should write down right next to his idea – why market participants won’t be able to get around it and why regulators will enforce it predictably,” Calomiris said.

Experts all agreed on stricter and more precise financial regulatory policies in order to avoid another “too big to fail.”

“We face an important choice: are we going to really do serious reform that I call back to the future era, some kind of updated version of real functional control of financial markets,” Stanley said. “Unless regulators get more serious about using the statutory authority they have under Dodd-Frank, it’s a direction that’s doom to failure in a lot of ways.”