New Delhi, Feb. 18 -- Kevin Warsh hasn't even been confirmed by the Senate to become the next Federal Reserve chair, but economists and commentators are already speculating about what his tenure will look like and what stamp he will leave on the institution.

Warsh's legacy won't be determined by whether he perfectly times the next rate change or how many times he cuts. Rather, it will be shaped by how he handles weakening financial market discipline and regulation.

Congress and the president set the statutory framework for financial regulation, not the Fed. But within that framework, the Fed wields enormous discretion over how capital rules are calibrated, how stress tests are designed and enforced, how supervisory standards are interpr...