The Time Has (Finally) Come for a Single Regulator
Regulatory relief is expected to be a top policy item for the incoming Trump administration, and nowhere is the need for relief more apparent than in the financial services industry. The place to start is to eliminate overlapping jurisdictions among the bank regulators.
Banks and other financial intermediaries today face a monumental web of often duplicative regulations imposed upon them by the panoply of regulatory and supervisory agencies. The incoming administration can address this burden with a simple principle: a financial institution should have no more than one federal regulator.
Disentangling the current regulatory web would not only result in significant direct budgetary savings to the government, but would also save the industry countless unproductive hours and expense. Consumers, meanwhile, would benefit from lower costs for financial services products.
The time for consolidating the regulators is now. With control of the White House and both chambers of Congress, reform-minded Republicans have never been in a better position to simplify the regulatory structure. Virtually everyone agrees that more efficient regulation would provide much-needed budgetary savings and help invigorate economic growth.
A "one bank, one regulator" approach does not imply leniency toward banks. Rather it would make regulatory oversight smarter and eliminate wasteful duplication of regulatory responsibilities.
The current alphabet soup of regulators is dizzying.
All banks are subject to supervision by a chartering agency. For national banks, this is the federal Office of the Comptroller of the Currency. A state-chartered bank answers to a state regulator, but is also assigned a federal regulator: state "members" of the Federal Reserve System are supervised by the Fed; state "nonmembers" by the Federal Deposit Insurance Corp. The Fed oversees any bank holding company, while the FDIC has "backup" supervisory authority for any institution with federally insured deposits.
In addition, there is the Consumer Financial Protection Bureau, which was established by the Dodd-Frank Act. The CFPB sets policy for all institutions that offer consumer financial products; the bureau also supervises the activities of banks with over $10 billion in assets, as well as larger institutions in certain nonbank sectors.
Publicly traded financial institutions are also subject to the scrutiny of the Securities and Exchange Commission. Add to that the various state regulators for insurance companies and securities dealers.
The situation is so confusing that there are even regulators to coordinate the regulators, such as the Federal Financial Institution Examination Council. The FFIEC is an interagency body that coordinates the supervisory and regulatory activities of the Fed, OCC, FDIC, CFPB and the National Credit Union Administration. A representative state regulator also sits on the council.
If it takes a special interagency body to harmonize the activities of all these regulators, would it not be simpler to consolidate these various agencies and have just one federal regulator for each financial institution category: one for banks, one for broker-dealers and one for investment companies? State-chartered institutions could continue to be regulated by their respective state agency and by one federal regulator, if appropriate.
Similar proposals have been floated over the years, but turf fights among the various agencies have stymied reform. The incoming Trump administration was elected on the promise to "drain the swamp." Nowhere is that more feasible than eliminating the overlapping agencies in the banking and financial services arena.
Consolidating these duplicative regulatory bodies would result in direct budgetary savings to the federal government. In addition, the supervised institutions would save time, effort and personnel by having to deal with only one federal regulator, instead of having to be accountable to a multitude of regulators. As it is today, a veritable convoy of regulators from various agencies parades through every bank, often spending weeks at a time even in small and midsize institutions.
In addition to the regular safety and soundness, and consumer compliance, exams, there are exams focused on compliance with the Bank Secrecy Act, the Community Reinvestment Act and other specialty areas subject to regulation.
All that could be simplified and made more efficient, thereby allowing banks to considerably reduce their expense. These savings in compliance and legal costs would allow the banks to lower the charges to their customers, who would benefit from the lower fees and charges. Alternatively, the banks could use the cost savings to build up their own capital – thereby making them safer organizations. Better-capitalized institutions would be less likely to have to rely on the FDIC or potential taxpayer bailouts.
The same principle of having only a single federal supervisor for each type of financial institution should also be applied to nonbank financial institutions, like insurance companies, broker-dealers, mutual funds, investment advisors, securities companies and other financial market participants.
This proposal would bring the United States into conformity with financial regulation as practiced throughout the world. Virtually no other industrialized country has this myriad of overlapping supervisory and regulatory agencies.
The result of consolidation would be greater clarity, simplicity and savings all around.
Robert Heller is a former governor on the Federal Reserve Board and a former president of Visa. He is the author of "The Unlikely Governor: An American Immigrant's Journey from Wartime Germany to the Federal Reserve Board."