Academic journal article ABA Banking Journal

Creative Tension

Academic journal article ABA Banking Journal

Creative Tension

Article excerpt

Creative tension

Reading between, and on, the lines of this month's cover story, you can detect a bit of rivalry and contentiousness in the comments of state bank supervisors regarding their federal counterparts. This particular group of state supervisors is not in awe of Washington, and in fact is critical of federal legislators and regulators on certain points.

They were quite pleased to be able to respond to our questions in a public forum like this. It was a first for us, and, quite frankly, we should have done it a lot sooner. For the 8,600 state banks in this country, state banking officials are important people. Yet they are not heard from nearly as often as the heads of the federal regulatory agencies. What a maze. Outsiders, as well as some banking insiders, may wonder why the dual system of state and national bank regulation exists. To some, it has a look of unnecessary complexity.

But it works. Furthermore, it's been working for a long time, even though no one set out to design it from scratch the way it exists now.

One of the reasons it works, we think, is because of the creative tension that exists between the various federal agencies and between the state and federal levels. ABA made the same point - used some of the same words in fact - in testimony before the Fed last year (see p. 14). Naturally this sort of thing can get out of hand and become an impediment rather than a stimulus. But competition often spurs improvement. The efforts by many states to expand banks' charters in lieu of any federal action is a case in point.

A negative side of this multilateral system is that it creates inequities between different classes of banks and between banks in different geographic locations.

But our system of banking is quite unique in the world, with banks ranging in size and scope from Morgan Guaranty to Cottage Grove Bank, Cottage Grove, Oreg. Could a single regulator cover the whole of American banking effectively? That seems unlikely. …

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