Financial Regulatory Forum

Key US senator determined to create super bank cop

By Reuters Staff
September 29, 2009

U.S. Senator Christopher Dodd (D-CT) speaks in front of his close friend Senator Edward Kennedy's casket during a "Celebration of Life Memorial Service" for Kennedy at the John F. Kennedy Library and Presidential  Museum in Boston, Massachusetts August 28, 2009. By Karey Wutkowski
WASHINGTON, Sept 29 (Reuters) – A senior U.S. Democratic senator said on Tuesday he is moving forward with his effort to consolidate bank supervision into a single federal regulator, despite criticism from current bank regulators who do not want to lose power.

“It’s clear that we need to end charter shopping, where institutions look around for the regulator that will go easiest on them,” Senator Christopher Dodd, chairman of the Senate Banking Committee, said during a hearing on bank supervision.

Dodd’s plan would consolidate the Office of the Comptroller of the Currency and the U.S. Office of Thrift Supervision into one regulator. It would also strip direct bank supervision powers from the Federal Deposit Insurance Corp and the Federal Reserve, transferring those powers to the new regulator.

Dodd has not yet introduced legislation to consolidate the bank regulators. His plan would go further than what the Obama administration has put forward.

The move to streamline the current system of four bank regulators is part of a larger effort in Congress to overhaul financial regulation to prevent crises such as the recent meltdown of financial markets.

Other pieces of the overhaul include creating a consumer agency to police financial products, and empowering the FDIC or another agency to dismantle troubled financial firms whose failure could threaten market stability.

The idea of a single bank regulator would attack a key problem in the financial crisis of 2008-2009 — “regulator shopping” by firms such as Countrywide Financial and American International Group Inc, both poster children for unfettered risk-taking. Those institutions chose the OTS, an agency that had gained a reputation for relaxed standards, as their primary regulator.

A single bank regulator would also ease the onerous compliance issues that many institutions face, said Eugene Ludwig, chief of the Promontory Financial Group and former U.S. comptroller of the currency.

“There are so many needless burdens caused by this cacophony of regulators, rules, examinations and enforcement activities that many financial services companies shift their business outside the United States whenever possible,” he said.
PRESERVING THEIR TURF
Existing federal regulators have resisted a catch-all regulator for banks.

FDIC Chairman Sheila Bair, a Republican widely praised by Democratic lawmakers for her focus on capital requirements and predictions of the mortgage crisis, strongly opposes the idea.

Bair has said a single regulator would likely focus on the needs of larger banks to the detriment of smaller ones. She has argued against “putting all your regulatory and supervisory eggs in one basket” and has said regulatory tension tends to result in better rules.

Comptroller of the Currency John Dugan and Fed Governor Dan Tarullo have been more restrained, saying there are advantages and disadvantages to each approach.

Republican Senator Bob Corker on Tuesday echoed some of Bair’s concerns, saying multiple regulators can serve as checks and balances on each other. “Each of the regulators — sometimes gleefully, sometimes not — points out the deficiencies of the other regulators,” he said.

FULL STEAM AHEAD
Dodd said he will move forward with the consolidation plan.

“The most common argument is not that it’s a bad idea — it’s that consolidation is too politically difficult,” Dodd said. “That argument doesn’t work for me.”

The consolidation plan would retain the dual U.S. banking system, with one federal bank regulator working with 50 state bank regulators.

Dodd said he is getting closer to a consensus with other senators on regulatory reform ideas. But he said the Senate Banking Committee will not rush the single piece of legislation that will try to capture all the reform ideas. “I think it’s important to do it carefully and right,” he said.

Lawmakers in both the Senate and the House of Representatives are attempting to meet the Obama administration’s request to finalize regulatory reform overhaul by the end of this year.

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