For a while, it looked inevitable that as a result of the financial crisis we were going to consolidate our patchwork system of financial regulators. Nowadays not so much. Tyler Cowen tries to offer four reasons not to money:
1. Getting current regulators to do a better job may be a better goal.
2. The consolidation behind the Department of Homeland Security has not been a smashing success. It’s too easy for regulators to focus on formal goals of consolidation at the expense of substantive goals of mission.
3. The major overseer probably would have to be the Federal Reserve and that would mean the long-run chances for restoring an independent central bank would be slim. The Fed as super-regulator would be more accountable to Congress than is desirable.
4. Many of the real regulatory problems are due to the preferences of Congressional committees and it is high time we admitted this. How about reforming them?
Points two and three I’m on board for. I’m not so sure about the others. Point one is definitely true, but my understanding of the dynamics is that consolidation would help do this. Right now, institutions can forum shop and basically pick their own regulator. Meanwhile, many regulators’ budgets come out of fees from regulated entities. So basically you have regulators competing against each other for the “business” of regulated entities. It’s an inherently problematic situation. Similarly on point four, the easiest way to consolidate the congressional oversight of financial regulation would be to consolidate the agencies to be overseen. More broadly, congress is depressingly dysfunctional.
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