Anonymous Banker on Financial Regulation Reform

By Anonymous Banker

In light of the recent efforts to come up with a reformed regulatory infrastructure for the financial industry, I feel the need to reiterate my comments on our financial industry's regulators, which I have referred to as Our Nation's Ball-less Wonders (what can I say, I'm colorful!). I especially want to look at how they have dealt with and will now deal with community banks.

The current debate has focused on whether the Federal Reserve should become a sort of mega-regulator. But the real question, I think, is whether in the past the Fed has performed its job to protect this country and our economy by actually enforcing the regulations that existed. I think the facts show that the answer is no.

First, a primer. In the world of banking there are five regulating authorities: the FDIC regulates state-chartered banks because it insures them; the Comptoller of the Currency regulates national banks; the Fed regulates banks that become members of the Federal Reserve System; the Office of Thrift Supervision regulates thrifts; and the National Credit Union Administration regulates--guess!!--credit unions. When Congress passes a law, such as the Fair Credit Reporting Act, it orders each agency to adopt regulations to implement that law. When the law affects more than one jurisdiction, the relevant governing agencies will come together and create a "uniform regulation" that will be applied throughout the industry.

Additionally, while there is a need for all banks to comply with, say, the Safety and Soundness in Lending and the Fair Credit Reporting Acts, there is quite a distinction among investment banks, national banks, regional banks, and community banks, and their different regulators reflect this.

One mega-regulator could potentially lose sight of the contribution to our country fostered by a healthy competition within the industry, including from the community banks. I fear a mega-regulator will ultimately move us closer to having fewer banks to chose from, with our valued community banks being the loser in this game.

My fear is that transferring most regulatory authority to one agency will dilute the current system of checks and balances, and will reduce the possibility that some agency, any agency, will cry foul and take action when the financial companies fail to adhere to the laws of this country. Perhaps the plan might work, if, in addition to the consolidation, the people were also represented by an ombudsman to act as watchdog when the Fed fails to do its job, as it surely will.

To be fair, when we evaluate the benefits of a mega-regulator, I would say that any consolidation that reduces expenses and thereby saves taxpayer dollars, is a good plan.

Still, the Fed has failed us miserably in the past, and I have no reason to believe that they will perform any better in the future.

Finally, I must once again encourage the individual people of this country to meet with their Congressional leaders and to write to their journalists to express their opposition of this new plan. This country affords us freedoms, and as a people, we are failing miserably in exercising our rights to play a vital role in our own destiny.

Anonymous Banker is a 35-year veteran of the banking industry who has spent much time as small-business banker and credit underwriter. He blogs at anonymousbanker.com.

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July 1, 2009 2:11 PM