Comptroller of the Currency Eugene A. Ludwig on Thursday attacked umbrella supervision, saying it would increase compliance costs and expand the safety net to nonbanking units.

Financial reform legislation pending in Congress would consolidate into one agency the oversight work done by banking, securities, and insurance regulators. This umbrella supervisor would disseminate data on financial companies to other regulators and could conduct on-site reviews.

"There seems to be little to gain from transferring responsibility for consolidated supervision to an umbrella supervisor who is farther removed from the bulk of the banking firm's activities," Mr. Ludwig said at a conference sponsored by the American Enterprise Institute. "We need to look before we leap and remember the medical phrase, 'First, do no harm.' "

Mr. Ludwig's views were countered by Federal Reserve Board Governor Susan M. Phillips, who said a functional regulator cannot adequately assess large, multinational financial companies with centralized risk-management.

"Some kind of umbrella supervision will be necessary to protect financial institutions and systemic concerns," she said.

The umbrella regulator could keep costs down by limiting on-site reviews to evaluation of management oversight and internal controls, she said. The system would mirror holding company regulation in which the Fed supervises the parent while state and federal banking supervisors oversee subsidiaries, she added.

But Mr. Ludwig, in his harshest comments yet on the topic, said umbrella supervision would subject an already over-regulated industry to even more bureaucracy.

"Umbrella regulation will carry a high price," he said. "Redundant layers of regulation increase both the direct and budgetary costs of regulation and the burden that regulation imposes on the regulated entities."

Mr. Ludwig also warned that this new system increases the likelihood that the government will expand the safety net to nonbanks because the umbrella regulator may be unwilling to allow a securities or insurance subsidiary to fail.

Finally, he questioned the need for a single agency to coordinate the collection and dissemination of data on a financial conglomerate. Regulators would be better off discussing problems directly among themselves rather than sharing information through an intermediary, he said.

"Routinized information sharing could well be both more costly and less useful than improving bilateral communication channels so that a supervisor facing a particular problem can more easily ask for the precise piece of information that he needs," he said.

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