Is US Penny-Wise, Pound-Foolish with Regulatory Agencies?
Isaac, William M., American Banker
IF YOU'RE CONCERNED ABOUT stability in the financial system or the ability of regulators to cope with mounting problems and failures, read on. Some misguided souls in the administration and Congress are taking actions that threaten both.
The nation's finanical system is in a state of upheaval. Regulators and financial executives are facing enormous challenges. High and volatile interest rates, massive budget and trade deficits, the shift in the economy away from the rampant inflationary spiral of the 1970s, sweeping changes in technology, and increased competition are the most notable sources of the turmoil.
The Federal Deposit Insurance Corp. has over 1,100 banks on its problem list, and banks are failing at the rate of more than 100 per year, up from 250 problem banks and a handful of failures a few yars ago. So many thrifts are experiencing problems that the Federal Savings and Loan Insurance Corp. has stopped disclosing the number.
Rational responses to these problems would be to strengthen the supervision of institutions, grant them more flexibility to compete and correct the underlying causes of the economic problems. Unfortunately, rational throught and action do not appear to be carrying the day.
The economic problems confronting financial institutions could be greatly alleviated by eliminating the budget deficit. Instead of carefully considered action, we get Gramm-Rudman.
The competitive problems could be ameliorated by granting banks and thrifts more tools to stay abreast of their less regulated brethren in the financial services industry. Instead of these reforms, we get endless debate and handwringing by a Congress immobilized by special-interest politics.
Drive to Take Away Powers
The latest assault on reason comes not in these two highly publicized arenas, but in a behind-the-scenes battle to strip the regulatory agencies of what power they have to maintain order in a disorderly world.
As a time when the financial agencies need highly trained and skilled professionals as never before to detect and deal with problems before they threaten to bring down the whole system, the Office of Management and Budget and the General Accounting Office are attempting to use Gramm-Rudman to reduce the budgets and the political independence of the FDIC, the Comptroller of the Currency, and other financial agencies. …