The Battle of the Regulators

Regulators are in a power struggle as new policy proposals as well as Congress mull regulation reform of the financial system.

John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.”

Behind the scenes, the two regulators have been clashing over a host of issues, officials said, be it the administration’s coming regulatory overhaul or Ms. Bair’s campaign to shake up the top management at Citigroup.

So what exactly is the plan? The latest is to create one super agency. We have yet another Geithner pre-annoucement announcement where these vague hints are laid out:

  • The Federal Reserve as Top Regulator
  • "Super" council of regulators to monitor systemic risks
  • Global, across borders, regulation
  • Less leverage, more capital requirements
  • Different "wind down" method for failing banks?
  • To include OTC derivatives as subject to regulation

While there is all of this talk of one super agency, there are reports of an additional agency, aimed at protecting consumers.

House Financial Services Committee Chair is not so convinced of a super agency and one might note the House now has a majority to audit the Federal Reserve.

Do we really want the Federal Reserve, which is a gathering storm to get them under the people's view and control, obtaining even more power with no oversight really and transparency?

Oh yeah, here come the lobbyists.

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The heat is on internationally for U.S. reform

The G8 announced The Lecce Framework on Saturday and the BRIC summit begins next week.

It will be interesting to see how reform is implemented in the U.S. In spite of the strength of the lobbyists, the international strong arm may be tougher.


Unless, that is, the U.S. system is so short-sighted as to choose short-run self-interests and greater loss of international viability.


giving more power to the Federal Reserve

which already has little oversight is beyond belief frightening to me. So, one thing I hope Congress does is nix that entire idea.

If you (others) see any policy details help out in amplifying them. I'm swimming through a lot of testimony and various proposals but this week is going to be a windstorm and I seriously doubt I can comprehend/catch all of it, not by a long shot.

I hear you on the HR1207

So, who do you trust to be the Mega-Regulator?


My point is that I think you are looking at a tree and possibly missing the forest.

it seems to be dependent upon leadership

Honestly I'm just not sure for the current agencies, i.e. the SEC, FDIC, etc. seem to be dependent on who is appointed.

If they could figure out to put together something where the integrity cannot be bought, politicized, compromised, no loopholes, backdoors, that's what I would like to see.

I'm wondering about the GAO model, in terms of power and integrity. They report to both Congress and the administration but the head Comptroller is appointed by the President for 15 year terms. But of course they report, they do not endorse, which makes it more political, more power.

So that would be a "super regulator" but reporting to both branches of government.

Comes down to the electorate

The Fed is designed to be less sensitive to politicking. Sometimes it works, sometimes it's a disaster. Agencies like the SEC are political appointments. Sometimes it works, sometimes it's a disaster. FDIC works pretty well, probably because it has limited jurisdiction. GAO works pretty well, because (as you point out) it has no real power.

Not sure there are any good institutional answers here, there are surely any number of bad ones. At some point though the electorate has to realize that its choices or lack thereof have consequences. What was it Churchill said about democracy ... ?

Too big to succeed

Almost any economic system or governmental system works if you keep it small enough that people have to meet each other socially.

Federal is too large.
Maximum jobs, not maximum profits.

Maximum jobs, not maximum profits.

I'd personally like to see a reversal

I don't think the federal government is competent to be a mega-regulator- or should be.

What we need is a breakup- 50 independent state FEDs coining money under the approval of state governors.
Maximum jobs, not maximum profits.

Maximum jobs, not maximum profits.

yellow dog

Can you flesh out the details of this "Lecce Framework" and write it up either as a blog post or Instapopulist (forum)?

It looks like you're already in the hunt and considering the constant "global regulatory agency" hints we've heard and upcoming regulation, making us all aware of the details would be really informative.


I can put something together quickly that reflects the details of the agreement.

To put it truly in perspective would need to include a global response timeline and G8/G20 economies effected by the credit crisis. That will take a bit more time and research.

Also, we'll have the full details of the U.S.  castration response by Thursday.


My apologies for hijacking your thread, but a few other things I have rolling around:

I'm extremely curious about BlackRock. The company is getting preferential treatment by the gov. Ay least one of their board members was a member of the Fed. What is the back story? Whose money are they representing? Do they have ties to JPM or MS?


Also, from Calculated Risk  Krugman: "Risk for long stagnation is really high" , I have been searching for probability models that would determine the most likely outcome for U.S. economy. I would think a "Game Theory" would be applicable as the economy tends to pool toward the path of least resistance.

I throw these out for anyone to pick up.


sounds like

you might be ready to take the plunge as a blogger. I noticed BlackRock too and that would make a very good topic.

Still on the To Do List

Still working on putting together a post that meets EP's high standards.
My time demands are in overdrive these days - and I only allow for so many ultra cerebral thoughts in any given day. :)