For some reason not altogether clear to me, restructuring the banking agencies is gaining momentum in Washington. It would seem we have more important things to address.

For more than a decade, the banking industry's share of the financial services marketplace has been dropping like a rock. Measure it on the liability side of the balance sheet or the asset side and you get the same story.

The trend lines are nothing short of alarming. The financial services marketplace is changing at breakneck speed, and the banking industry is not keeping pace.

Chairs on the Titanic

Under the circumstances, reorganizing the banking agencies strikes me as akin to rearranging the deck chairs on the Titanic. So why is official Washington spending so much time and energy trying to do just that?

I suspect part of the motivation is the desire of politicians to be seen as doing something. We just came through a tumultous period in banking. Surely something needs to be fixed.

There are indeed some things that need to be fixed. But the structure of the banking agencies would not be anywhere near the top of my list.

$15 Billion Burden

We could begin with the enourmous cost burden that has been heaped on the banking industry. It's estimated that complying with federal regulations, paying for deposit insurance, and maintaining sterile reserves at the Federal Reserve costs the banking industry over $15 billion per year.

It's not hard to understand why, in view of these numbers, the industry is losing market share to unregulated or less regulated competitors.

But how does Congress address this issue when Congress is a big part of the problem? The current congressional leadership has brought us some of the most costly and oppressive banking legislation in history.

Limits on Powers

Then there are the laws that have the banking industry in a straitjacket, denying it the flexibility to evolve with the marketplace. Banks have limited freedom to open or close branch offices, to diversify geographically, or to offer a full menu of insurance, securities and other financial services.

But politicians don't like to deal with these issues because they generate conflicts among important constituencies. Name a congressman or senator who does not have insurance agents in his or her district, for example.

If you want to project a sense of motion, progress and reform, but can't or won't deal with the fundamental issues, where do you turn? You've got it - agency restructuring.

The cards are stacked against those who would try to reshuffle the agencies, beyond the obvious step of merging the Office of Thrift Supervision and the Comptroller of the Currency.

A meaningful realignment would involve the creation of a single agency to regulate banks, thrifts, and credit unions.

Sacred Cows

You can forget credit unions even before you begin. They are sacred cows, particularly when it comes to something as trivial as how they are to be regulated.

So that leaves banks and thrifts. Will the new regulatory agency be in the Treasury, the Federal Reserve, or independent of both? I can't imagine any administration allowing bank supervision and regulation to be placed entirely outside its control.

So it's difficult for me to see where this thing goes. The Fed and the Treasury will almost certainly stand in the way of meaningful reform.

The wild card this time around is the banking industry, which in the past has been lukewarm, at best, about agency restructuring. Bankers are extremely frustrated with their plight and are ready to lash out at just about anyone and anything.

It's not beyond the realm of possibility, shortsighted though it may be, that the Federal Reserve or the Federal Deposit Insurance Corp., or both, will feel the heat of their rage.

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