By Isaac, William M.
American Banker , Vol. 158, No. 18
The Clinton administration is giving consideration to reducing the number of agencies that regulate banks.
I have an unlikely candidate: the General Accounting Office.
The GAO, which began life some 70 years ago as the auditing arm of Congress, employing a handful of green-eyeshade types has grown to a vast bureaucracy' of some 5,000 people.
In recent years it has become a significant factor in the regulation of banks and thrifts, second -guessing, the banking agencies at every turn, contributing greatly to the climate of regulatory overkill and exacerbating the credit crunch.
The Good Old Days
When I was chairman of the Federal Deposit insurance Corp. during the 1980s, the GAO was a nuisance but not much more.
Every now and again, at the behest of some member of Congress or on its own initiative (it was never easy to figure out which it was), the GAO would demand to inspect the FDIC's supervisory activities and records.
We stood firm in refusing direct access to the FDIC'S files, though we were willing to provide information so long as the GAO agreed to maintain confidentiality. The GAO huffed and puffed, threatening subpoenas and the like, but in the end we were always able to maintain an uneasy truce.
The savings and loan debacle changed the balance of power. To say that the Federal Home Loan Bank Board was less than candid about the scope of the S&L disaster would be charitable. though anyone with an ounce of sense knew that big problems were brewing.
The S&L crisis helped create a miserable climate in Washington. The Democrats were in charge of Congress and the Republicans the White House. Neither camp trusted the other, and the media and the public had little use for either.
However dim one's view of the GAO's expertise in bank regulation. there can be no denying the. GAO's uncanny ability to expand its domain. It seized on the S&L crisis with blinding speed.
Challenge to FDIC
Its first move was to insist that the FDIC change its time-tested method of reserving for future losses.
The FDIC's practice had been to refrain from reserving for losses on future bank failures, except when it knew a bank was insolvent.
Not good enough, said the GAO. It badgered the FDIC into reserving for banks that were "in substance equity insolvent," whatever that might mean. …