In financial agency turf wars, at least one loser is obvious
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Evidently, Treasury Secretary Timothy Geithner failed to strike fear in the hearts of the nation’s top financial-system cops, after he lambasted them late last week for publicly opposing parts of the Obama administration’s regulatory-overhaul plan.
In testimony before the Senate Banking Committee on Tuesday, banking regulators including Federal Deposit Insurance Corp. Chairwoman Sheila Bair and Office of Thrift Supervision Acting Director John Bowman hardly sounded contrite -- despite Geithner’s expletive-laced attempt to quash agency turf wars.
On the administration’s proposal to place oversight of major financial firms under a single regulator -- most likely the Federal Reserve -- Bair was right back with her previous objections.
‘We do not see merit or wisdom in consolidating all federal banking supervision,’ she told the Senate. ‘The risk of weak or misdirected regulation would be exacerbated by a single federal regulator that embarked on a wrong policy course. Prudent risk management argues strongly against putting all your regulatory and supervisory eggs in one basket.’
Of course, no government bureaucracy ever believes that it should shrink itself or give up authority. But even Bair, in arguing for the regulatory status quo, seems to think that we could do without at least one financial agency: the Office of Thrift Supervision.
The OTS, recall, had responsibility for Washington Mutual, IndyMac Bancorp and Downey Financial, all of which went down in flames last year, with the latter two costing the FDIC fund dearly. Another OTS-regulated giant, Guaranty Bank, is on the brink of collapse.
The Obama administration wants to kill off the OTS, hand its oversight functions to a single national-bank regulatory agency, and phase out thrift charters.
Not surprisingly, the OTS’ Bowman insisted in his Senate testimony that the agency should be preserved. His reasoning included this gem: ‘Failures by insured depository institutions have been no more severe among thrifts than among institutions supervised by other federal banking regulators.’
In other words, the OTS should survive just because it’s no worse than its peer agencies in preventing failures?
At another point, Bowman argued that the OTS’ image suffered unfairly because it allowed insolvent thrifts like WaMu, IndyMac and Downey to collapse, while Citigroup and other big banks were propped up by the Treasury. As if that somehow absolves the OTS for what happened on its watch.
Sen. Charles Schumer (D-N.Y.), whom the OTS last year accused of helping to bring down IndyMac by publicly questioning the bank’s health, wasn’t buying Bowman’s line. ‘Almost everyone regards the OTS as having failed in its responsibilities,’ Schumer asserted.
As for the administration’s basic goal of consolidating regulatory authority, Schumer made a well-reasoned case in a relative few words:
‘A hodge-podge of different regulators add to conflicts in regulation and creates confusing burdens for the banks. We’ve all heard from institutions who were told one thing by one regulator and another thing by another regulator, each of whom has authority. ‘A single regulator could keep better tabs of industry-wide risks, dangers and developments. That’s pretty apparent. And . . . a single consolidated regulator can eliminate agency and regulatory arbitrage and gaps, and no bank could escape from being held accountable for violations and poor practices.’
Sounds like what Geithner might have been trying to say -- without the expletives.
-- Tom Petruno