Banking Industry Reform: Regulation by a Single Agency?

By Damozel | Apparently "senior administration officials" are considering replacing various federal agencies that failed to regulate the banks with a single agency.  This would be in addition to other reforms.

The new regulator would assume responsibility for the safety and soundness of banks, currently divided among the Fed and three other agencies: the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. The OCC and the OTS would probably disappear, while the Fed and the FDIC would retain other responsibilities. (WaPo)

Why might such a reform be necessary, you ask? 

Under the current system, banks can choose their regulator.

Yes, you read that correctly.. 

Under the current system, banks can choose their regulator.(WaPo) 

And wait!  There's more.  The agencies are funded by fees from the banks that choose them and for whose custom they compete by offering more lenient oversight:

Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis. (WaPo)

Lock the barn door!  The cows are gone!  Okay: kidding.  It sounds like a better idea than what we've had;

The agency would be a key element in the administration's sweeping overhaul of financial regulation, which officials hope to unveil in coming weeks, including the creation of a new authority to police risks to the financial system as well as a new agency to protect consumers, according to three people familiar with the matter. Most of the proposals would require legislation.  (WaPo)

At MoJo, Kevin Drum considers the notion of a single bank regulator to be long overdue.  He thinks that letting the banks shop around for the most lenient regulator is a bad idea too.  (Duh?)  Even The Wall Street Journal refers to " the hodgepodge of federal agencies that failed to contain the financial crisis as it ballooned out of control last year."

Drum does have some reservations, and it's hard to disagree with those too:

In any case, I'll repeat something I said earlier: specific regulations are all well and good, but I'd sure like to hear first what general principles are guiding these decisions.  My picks are (1) stronger limits on leverage, wherever and however it occurs, (2) a stronger commitment to countercyclical policies, and (3) a little more sand in the gears.  These might be the wrong principles to choose, but if they are, I'd like to hear which ones are right before a tidal wave of regulations comes heading down the pike. (MJB)

Meanwhile, the various federal agencies that would be replaced by a single regulator under the plan currently under discussion "have dug in for a fight."  (The Wall Street Journal)

Memeorandum has more

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