Magazine article Management Review

Enter the "Super Regulator"

Magazine article Management Review

Enter the "Super Regulator"

Article excerpt

The White House and Congress are promoting separate proposals designed to consolidate the present gaggle of bank regulatory agencies into one "super-regulatory" agency.

"I believe the bank regulatory system should be consolidated and made independent," argues Rep. Henry Gonzalez (D-Texas). "It is not good enough merely to guarantee deposits against loss-the best insurance in the world won't work if the building and fire codes aren't being enforced," he says.

The current bank regulatory system has "broken down," he claims. "Consolidation of the current regulatory agencies would cut out the costly, inefficient, overlapping and often irrational regulation we have today. A unified system will unify concepts-what is capital for one will be capital for another, and what is risk in one kind of institution will be the same kind of risk in another institution."

Creating an independent regulator is another main goal of both the White House and Gonzalez proposals. Me regulatory system should be independent, capable of making objective assessments without regard to narrow industry interests or agency politics," points out one House Banking Committee staffer.

General principles guiding the development of the consolidation program include the following: * Regulators of financial institutions should be independent. * Agencies that charter and regulate institutions should be separate from those that insure depositors-each should serve as a check against the other.

* Regulation should be unified.

* Regulation should reward good management just as effectively as it punishes bad management.

Under both the House Banking Committee bill and the White House proposal, the supervisory functions of the Federal Reserve (bank holding companies), FDIC (deposit insurance for commercial banks and S&Ls), Comptroller of the Currency (commercial banks), the National Credit Union Administration (credit unions) and the office of Thrift Supervision (savings and loans) would be consolidated into one super agency.

While the regulatory and examination functions of these agencies would be combined, management of the federal bank deposit insurance program (now run by the FDIC) would remain separate and independent of the new organization. The FDIC also would be given authority to determine who receives new bank charters, as well as what-and when-institutions should be closed. This is designed to prevent banks from end-running federal supervision by opting for a state charter, while still having the deposits that underwrite their business ventures insured by the FDIC.

The role the Fed plays in this new set-up may be a sticking point, as both the Fed and many policy-makers are concerned that it may lose its present independence and authority to set monetary policy.

At the current time, the Federal Reserve regulates the activities of the bank holding companies that own individual banks, while other agencies supervise the banks themselves. Under the consolidation plans, the Fed would lose this authority and bank holding company policies would fall under the super-regulator's authority. Moreover, Gonzalez wants to make holding companies financially responsible for the failure of any of their banks that must be covered by the FDIC insurance fund.

In exchange for relinquishing its current bank holding company role, the Federal Reserve is being offered authority over the nation's largest commercial banks and an official voice in determining those troubled banks that are "too big to fail" and should be bailed out by the government or operated by federal regulators until a new buyer can be found. …

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