U.S. Eyes Single Bank Regulator

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The Obama administration is working to consolidate banking regulation under one supervisor, most likely the Federal Reserve. The White House will have to coordinate its plan with Congress, which is working out its own approach to financial markets regulation.


The Obama administration is poised to repose the biggest change in banking oversight since the 1930s. The administration is preparing to ask Congress to scrap the confusing overlapping system of multiple regulators. In its place -one single government entity that would regulate all U.S. banks. NPR's Adam Davidson of our Planet Money team is here to explain. And Adam, before we get to talking about the big change, why don't you remind us of how things work right now?

ADAM DAVIDSON: Well, by law, I believe, every reporter who talks about banking regulation has to call it an alphabet soup of regulators.

BLOCK: I see. So you're obeying the law?

DAVIDSON: Yes, I am obeying the law. We have the OCC, the OTS, the FDIC, the Fed. We have 50 state banking regulators. In other words, there are dozens and dozens of bank regulators. They're overlapping, so there's areas that are -many would say - too highly regulated, but then there are other areas that are way too loosely regulated. Banks are actually allowed to pick their own regulator and that actually creates competition, many believe. So the idea is, like, just get rid of this whole system and do something like what the British did in the 1980s - get rid of the whole old system and start with one regulator. That's it.

BLOCK: And what kind of details are coming out about how they would do this?

DAVIDSON: Well, officially all we know is that we'll know more in mid June. There's some basic principles to regulation, you know, protect consumers and make the system stable. So we really do have to read the tea leaves and talk to people off the record and that kind of thing. But the basic idea that seems to be gelling is that there would be one regulator that does day-to-day oversight of the banks. And then another regulator, possibly the Fed, that looks at the system as a whole and tries to figure out how the banks are adding up. Do they add up to a healthy system, or, as we have seen recently, a very unhealthy system?

BLOCK: And who really loves this idea of consolidating under one regulator? Is it said to be good for the banks, good for consumers, good for overall stability or what?

DAVIDSON: Well, it does seem that banks really like the fact that there are lots and lots of regulators to choose from. You know, if one's too tough, then you get to leave and go to another one - and that sort of encourages all of the regulators maybe to not be quite as tough as they could be. So that seems to imply that this is good for consumers and not so great for banks. But, at the same time, when the British created only one regulator, banks love it, because that regulator isn't that tough. And lots of banking operations fled the U.S. and went to the U.K. There is going to be such a huge battle.

The other phrase that journalists by law have to use - when talking about bank regulation - the devil is in the details. And people are going to be paying millions of dollars, spending thousands of hours looking at these details. And by people, I mean consumer groups, lobbyists for the banking industry. And the banking industry is not monolithic. We have big New York banks fighting against smaller regional banks. We have insurance companies fighting against hedge funds. We have all sorts of battles brewing. It's not even Democrats versus Republican. It's big-city Democrats and Republicans versus rural Democrats and Republicans. This is going to be a doozy of a fight.

BLOCK: And Adam, in the end, would this reorganization make the economy more stable, make it safer, prevent the next crisis? And this is your cue, Adam, to use the other phrase the reporters are legally obligated to say, which is: Only time will tell.

DAVIDSON: I know, the worst of all.

(Soundbite of laughter)

DAVIDSON: Time is actually the key word here. President Obama's advisor, Paul Volcker, said recently, hey, what's the rush? We know that we have 100 years of regulation to rewrite. We don't even know when this crisis is going to end. We don't even fully understand this crisis yet. There's no rush. Let's take a few years, let's really think this through. But the Obama administration did not seem to take his advice and said no, no, we want to propose major changes by mid June and that seems to be what they're going to do.

BLOCK: NPR's Adam Davidson reports on just about everything related to banks, money and finance at our Planet Money blog and podcast. Adam, thanks a lot.

DAVIDSON: Thank you, Melissa.

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