Why effective regulatory overhaul is hard

June 12, 2009

Tyler Cowen has a good post on why it might not be such a bad thing after all that the coming regulatory overhaul isn’t going to be nearly as big or comprehensive as many of us originally hoped.

Tyler’s best points, I think, are that (a) the Department of Homeland Security is living proof that regulatory consolidation is not necessarily going to be a great success; that (b) “box reshuffling” can be a distraction from “substantive goals of mission”; and that (c) a lot of the real obstacles to effective regulation are actually Congressional, rather than being endemic to the current structure.

Still, the current regulators have clearly failed at their jobs, there’s no reason for entities like the OCC and the OTS to continue to exist, and it’s worth remembering at all times that the number of large American financial-services companies with intelligent and sophisticated and effective regulation is, currently, zero.

There’s actually a case to be made that the biggest weakness of the Gramm-Leach-Bliley act was not that it allowed commercial banks to buy investment banks, but that it created no regulatory oversight commensurate with the systemic importance of the beasts that it spawned. It’s high time that oversight was rectified — with extreme prejudice.


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