Kevin is right that the Federal Reserve — which is owned by big banks and whose regulatory function exists to keep them strong — is not naturally inclined to protect consumers: after all, banks which treat consumers badly are often that much more profitable. The Fed, writes Kevin, is
institutionally and culturally oriented toward the financial community and macroeconomic management. Consumer regulation will never be taken seriously there no matter how many laws we write.
Well, “never” is a long time. But I think he’s right, practically speaking: if a Consumer Financial Protection Agency were to be created under the auspices of the Fed, then its officers would be taken less seriously than the prudential regulators overseeing systemic risk.
That said, however, a lot of the time all of those officers would be pulling in the same direction. Subprime mortgages are only the most obvious example: what’s bad for consumers can be systemically dangerous, too. And there would be advantages, as well as disadvantages, to a CFPA being part of the Fed: once senior Fed officials were convinced that the CFPA had legitimate concerns about a certain institution, there would be no question that the bank in question would reform its activities sharpish.
Which brings us to Avent, who has “a tough time seeing how a more fractious regulatory environment is a better one”. There are very good reasons why a single regulator is much better than an alphabet soup, where senior management at the various different agencies spend more time fighting with each other for power and influence than they do actually regulating. Ryan misunderstands my earlier blog entry: I don’t for a minute think that regulatory authority should be distributed. To the contrary, I think that it should be consolidated: the CFTC should merge with the SEC, the combined agency should become part of the Fed, and eventually, as the Tories are suggesting in the UK, the central bank should regulate everything.
Is such a thing realistic, or would the resulting behemoth be too big to manage, a bit like Citigroup? I think the answer would be to make the different arms of the super-regulator largely autonomous, but to encourage employees to move from one part of the institution to another quite regularly. Infighting within an institution is generally easier to manage and minimize than fighting between institutions.