Sen. Chris Dodd (D-CT) has ruffled some feathers in both the GOP and the banking industry by suggesting a regulatory reform package that consolidates all of the existing banking regulators into one super-regulator. The financial services industry roundly panned the idea, claiming that “the checks and balances under the current system are pretty good.” “The dual banking system has served this country exceedingly well for 150 years or more,” said Wells Fargo CEO John Stumpf
During a Senate Banking Committee hearing today, Sen. Bob Corker (R-TN) agreed, and added that the regulators shouldn’t be consolidated because it brings him great personal enjoyment to watch them blame each other for regulatory failures:
You mentioned having an alphabet soup of [regulators] coming to talk to us, and it’s not unlike witnesses coming before our committee with differing points of view in many ways. I have to tell you, I have enjoyed that. Each of the regulators — sometimes gleefully, sometimes not — points out the deficiencies of the other regulators. And I have to tell you, there’s some merit in that, just for what it’s worth. To have a captive regulator, much like we had with the GSE’s, which would be the case with all banks, to me, could be very problematic.
Contrary to Corker, warring regulators is absolutely unlike witnesses coming before a committee, because the regulators are also responsible for, well, ensuring the safety of the banking system. It’s not purely academic, and having regulators snipe at each other undermines faith in the regulatory system and prevents a proper level of accountability when that system fails.
As Felix Salmon has opined, “we need a powerful single regulator with teeth, not a council of bickering sub-regulators.” Indeed, a patchwork of regulators — particularly in a system in which the agencies are funded by fees paid by the very banks they regulate — encourages a race-to-the-bottom and regulator shopping. And that’s assuming an institution doesn’t simply slip through the cracks, with no one paying it enough attention.
Having one super-regulator would bring its own set of challenges and doesn’t ensure that all problems disappear. After all, Great Britain has just one regulator (with the Bank of England responsible for monitoring systemic risk), and still faced a financial shock. But consolidation would, at least, prevent banks from playing regulators off each other, and stop the completely nonsensical practice of making regulatory agencies compete for the “right” to regulate a particular institution.
As the New York Times reported, Comptroller of the Currency John Dugan and Federal Deposit Insurance Corp. Chairman Sheila Bair have been “at each other’s throats” on a whole host of issues since the economic meltdown, and refusing to consolidate the regulators “could intensify their turf battles.” While that may be great in terms of providing Corker with an afternoon’s entertainment, it does not help create a regulatory environment that is efficient and holds regulators accountable.