Where will effective bank regulation come from?
What kind of creature will the new National Bank Supervisor be? No one seems to be entirely sure. The NYT and WaPo say that Obama wants “merge” the OTS with the OCC. Reuters and the WSJ say the OTS will be closed, but make no mention of the OCC or the NBS at all. Bloomberg says the OTS will be “eliminated”, while the NBS will “assume the responsibilities of” the OTS and the OCC.
The white paper itself says that the NBS will “take over the prudential responsibilities” of the OCC and the OTS, and will “inherit” both agencies’ powers.
I suspect the vagueness is deliberate, but that by the time everything has shaken out, the OCC’s John Dugan will emerge as the head of the NBS, regulating federally-chartered banks, and will continue to spar with the FDIC’s Sheila Bair, who will regulate state-chartered banks. Banks, meanwhile, will continue to pick and choose whichever regulator they think will have the softer touch: Goldman Sachs, for instance, has decided to go for a state charter. Is there any particular reason why Goldman should be regulated by the FDIC rather than the NBS? Of course not — it’s all politics.
Meanwhile, “macroprudential” regulation of the banks — whatever that means — will be performed by the new Financial Services Oversight Council. But it’s hard to see either Dugan or Bair giving much if any of their current regulatory powers to the FSOC, which increases the already-high probability that the FSOC will be a Terribly Important Body which achieves essentially nothing.
There’s simply no way that this kind of structure is conducive to encouraging powerful and committed and intelligent regulators to do their job with a minimum of bureaucratic interference. Given how much such interference already exists within agencies like the SEC, I can’t imagine that it isn’t going to get even worse when you start getting turf wars between agencies. And remember that Congress hasn’t had the opportunity yet to take the white paper and make it even more complicated and less effective.
By the time this is all over, I’m sure a lot of time and effort will have been expended on creating the new regulatory architecture. But whether the outcome will constitute a significant improvement is far from clear.