Super bank cop idea gains support in Senate
Decreasing the number of U.S. agencies that police banks is an idea gaining momentum in Congress, even though bolder efforts to rip up the overall financial regulatory system and start fresh have stalled.
The Obama administration has proposed cutting the number of U.S. bank regulators to three from four.
Senate Banking Committee sources said there is an appetite to streamline more than that to prevent banks from being able to shop around for the most lenient regulator.
The idea of creating a single, super bank regulator has been discussed, raising the ire of some officials, while experts have said that simply reshuffling the organizational chart does not guarantee a better cop will be on the beat.
But a single regulator would attack a key problem in the financial crisis of 2008-2009 — ‘regulator shopping’ by firms such as Countrywide Financial and American International Group, both poster children for unfettered risk taking.
“You eliminate the risk of arbitrage or a race to the bottom,” said David Min, associate director for financial markets policy at the Center for American Progress, a Washington, D.C., think tank.
The administration has proposed folding the Office of Thrift Supervision — which largely regulates mortgage lenders and has gained a reputation for lax oversight — into the Office of the Comptroller of the Currency, which regulates many of the nation’s largest banks, such as Bank of America and JPMorgan Chase free credit scores.
Under the Obama plan, the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve would still supervise smaller state-chartered and federally chartered banks, respectively.
An aide for the Senate Banking Committee said lawmakers are still discussing how to slice and dice the bank regulators.
DODD, WARNER ON BANKS
The aide, who requested anonymity because the negotiations are private, said there is a consensus among committee members to go further than the administration’s plan.
Senator Christopher Dodd, Democratic chairman of the Senate Banking Committee, at a hearing last month asked if paring back to three bank regulators was “really enough.
Democratic Senator Mark Warner, also a banking committee member, has promoted the idea of a single bank regulator.
The Senate has taken the lead on this aspect of the Obama administration’s regulatory overhaul, with members of the House of Representatives less vocal.
“At the end of the day it would be positive because it would be true reform versus a band-aid approach,” said Lawrence Kaplan, a banking attorney with Paul Hastings in Washington, about a single bank regulator.
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