Banking groups oppose plans to consolidate regulators into single agency

By Darrell Delamaide

Two major industry groups have added their voices to the forces opposing plans to consolidate the various banking regulators into a single agency.

The American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) sent a joint letter to congressional leaders urging them to maintain the system of multiple regulators at the federal and state level.

“A single regulator is only good when it is right,” the letter says. “When wrong, the outcome could be catastrophic.”

The letter is addressed among others to Senate Banking Chairman Chris Dodd (D-Conn.), who is a leading proponent of the single regulator concept.

While the administration is only proposing to fold the Office of Thrift Supervision into the Office of the Comptroller of the Currency, Dodd has suggested that the regulatory activities of the FDIC and Federal Reserve should also be consolidated into a super banking regulator.

The industry groups cite the example of Great Britain, which changed to a single regulator and went on to see its banks hurt more deeply by the crisis than those in the U.S.

The two groups maintain that while the current regulatory structure is complex, variety in regulatory perspective provides a “healthy check against any one regulator neglecting its duties.”

They cite the example of the FDIC holding out against other agencies in favor of retaining leverage capital ratios rather than eliminating them as part of Basel II – a stance that in retrospect now seems more prudent.

The letter argues that a single agency would become bureaucratic and would be compelled to focus on the largest institutions, leaving smaller banks as second-class citizens. It would encourage state-chartered banks to switch charters and become national banks.

“Unlike any other country, we have a broad range of small, mid-size and large banks that meet different market needs,” the letter states. “We believe strongly that this diverse system would be greatly undermined by the creation of one, large regulatory agency.”

The letter, signed by ABA chief executive Edward Yingling and ICBA chief executive Camden Fine, also argues that the regulatory and examination activities of the FDIC and Fed strengthen these two agencies in the exercise of their other duties.

The groups dismiss the claim that charter-switching was among the causes of the financial crisis. They point out that Fannie Mae, Freddie Mac, Lehman Brothers and AIG did not switch charters, and that subprime lending, problems with derivatives and ratings agencies, and excess leveraging by Wall Street firms had nothing to do with charter choice. 

Big banks, which use the Financial Services Roundtable as their main forum for advocacy,

generally support the notion of a single regulator because it would streamline regulatory compliance. The ABA and ICBA represent regional and community banks.

State regulators as well as the FDIC and Fed also oppose the notion of consolidating all bank regulation into a single agency.

In addition to Dodd, the industry groups’ letter was sent to the Senate Banking ranking member, Richard Shelby (R-Ala.) and House Financial Services Chairman Barney Frank (D-Mass.) and ranking member Spencer Bachus (R-Ala.).