The Investors' Working Group Statement on the Federal Reserve (Arthur Levitt, William Donaldson, et al)

It doesn't get much harsher than having some huge investors and a couple former SEC Chairmen say:

U.S. Financial Regulatory Reform:
The Investors’ Perspective

A Report by the Investors’ Working Group
An Independent Taskforce Sponsored by

CFA Institute Centre for Financial Market Integrity
and
Council of Institutional Investors
July 2009

...This approach represents a middle ground between the systemic risk regulator advocated by the Administration and the “college of cardinals” model of oversight by the heads of existing federal regulators that some leading lawmakers propose. The IWG views both approaches with skepticism.

A council of regulators would have blurred lines of authority—ultimately no one would be in charge or accountable—and could be hamstrung by the usual jurisdictional disputes. The Administration’s approach, which envisions the U.S. Federal Reserve Board as systemic risk regulator, has more serious drawbacks. The Fed has other, potentially competing responsibilities—from guiding monetary policy to managing the vast U.S. payments system.

Its credibility has been tarnished by the easy credit policies it pursued and the lax regulatory oversight that let institutions ratchet higher their balance sheet leverage and amass huge concentrations of risky, complex securitized products. Other serious concerns stem from the Fed’s regulatory failures—its refusal to police mortgage underwriting or to impose suitability standards on mortgage lenders—and the heavy influence that banks have on the Fed’s governance....

Here's the IWG homepage.
Here's the report (33 page PDF)