As yet another report Thursday called for fewer regulators, states said they were digging in to keep their authority over financial institutions.
The Government Accountability Office released a 107-page report urging policymakers to reform outdated regulation. Among other things, the report recommended a review of state regulation as part of an effort to come up with a leaner regulatory model.
Policymakers should "consider the appropriate role of the states in a financial regulatory system and how federal and state roles can be better harmonized," the GAO report said.
But the report came out as state regulators, worried ever since the Treasury Department last spring called for a study of the dual banking model, have been working on their own set of principles. The recommendations, due out soon from the Conference of State Bank Supervisors, warn policymakers not to forget the value of state regulation as they prepare for an overhaul of the system.
"What we're trying to convey here is the ability of state regulators to be much more nimble and knowledgeable, because we're close to the institutions," said Maryland Banking Commissioner Sarah Bloom Raskin, who chairs the bank supervisor group's task force on regulatory restructuring.
The group's one-page set of principles said state regulators should remain relevant in a "new era of cooperative federalism."
The principles also say that regulation should be specific to an institution's size; consumer protection standards should be tailored to fit both state and federally chartered institutions; and a reformed system should "encourage a diverse universe of financial institutions as a method of reducing risk to the system."
John Ryan, the bank supervisor group's executive vice president, said policymakers need to be careful not to propose reforms that would leave states on the sidelines.
"The risk of squeezing out the states and — sometimes unintentionally — not understanding the consequences of these huge plans and reforms as they go through is very real," Mr. Ryan said.
But the GAO report further fed the uncertainty about dual banking as Congress gets set to debate a new regulatory structure this year.
It followed the March release of the Treasury's blueprint on revamping the system, whose sweeping recommendations included consolidating federal agencies and studying whether it makes sense to keep both state and federal charters.
The GAO, which emphasized broad strokes over specific changes, said regulators should have a clearer understanding of their missions; use both principles-based and rules-based oversight; close gaps that have allowed newer products to proliferate without scrutiny; and identify risks that could harm every institution.
The GAO said an optional federal charter for insurers, which are now state-regulated, would be another way to make the system more efficient.
"Policymakers must consider the number, organization, and responsibilities of each agency, and eliminate undesirable overlap in agency activities and responsibilities," the report said.
However, the report also recognized benefits in having multiple regulators, and cited comments from consumer advocates and state regulators that "concurrent jurisdiction … can provide needed checks and balances against individual financial regulators who have not always reacted appropriately and in a timely way to address problems at institutions."
The commenters also "note that states may move more quickly and more flexibly to respond to activities causing harm to consumers," the report said.
