Senate Banking Committee Chairman Chris Dodd made a concerted push Tuesday to create a single prudential regulator despite opposition from his counterpart in the House and community bankers.
The Connecticut Democrat said at a hearing on the subject that he would not give in despite growing political resistance to the idea.
"Last week I suggested further consolidation of bank regulators would make a lot of sense," he said. "Since that time, I have heard from many who have argued that I should not push for a single bank regulator. The most common argument is not that it's a bad idea—it's that consolidation is too politically difficult. That argument doesn't work for me."
Dodd is working on a bill that would create a single prudential regulator for all banks, stripping supervisory authority from the Federal Deposit Insurance Corp. and Federal Reserve Board. The Obama administration's plan does not go as far: it would simply merge the Office of the Comptroller of the Currency and Office of Thrift Supervision into a single national bank supervisor. House Financial Services Committee Chairman Barney Frank has said he does not think there is the political will to create a single prudential regulator.
But Dodd argued consolidation is necessary.
"It's clear that we must eliminate the overlaps, redundancies and additional red tape created by the current alphabet soup of regulators," he said. "We don't need a superregulator with many missions, but a single federal bank regulator whose sole focus is the safe and sound operation of the nation's banks. A single operator would ensure accountability and end the frustrating pass-the-buck excuses we've been faced with."
Although Dodd has openly discussed the prospect of a single regulator during recent hearings, Tuesday's remarks were among his most expansive and forceful on the topic. Community bankers have said that having a single regulator would mean the largest banks receive preferential treatment and put the dual banking system at risk, but Dodd said he would allow neither outcome.
"We need to preserve our dual banking system," he said. "Any plan to consolidate bank regulators would have to ensure community banks are treated appropriately. Community banks did not cause this crisis and they should not have to bear the cost or burden of increased regulation necessitated by others."
Other members of the panel and witnesses at the hearing supported Dodd's agenda.
In an e-mail to American Banker, Sen. Mark Warner, D-Va., said a consolidated regulator was critical to improving the system.
"Our banking system allows financial groups to shop for the weakest regulator and encourages money to migrate to the most weakly regulated parts of the system," he said. "If we do a good job on regulatory reform, a single banking regulator could eliminate this arbitrage while still preserving our dual banking system and without harming community banks."
Eugene Ludwig, the chief executive of Promontory Financial Group and a former comptroller, agreed that having too many bank regulators leads to too much unnecessary regulatory burden, and enables regulatory arbitrage.
"The worst feature of our current system is that for all the different regulators, the backup supervision and the volumes of regulation has not produced superior safety and soundness results," he said. "As the current crisis and the past several debacles have shown, our current expensive and burdensome system does not work."
Ludwig also drew a distinction between consolidated prudential supervision as he envisioned it and a superregulator, like the United Kingdom's Financial Services Authority.
"A consolidated institutional prudential regulator does not regulate financial markets like the FSA," he said. "The [Securities and Exchange Commission] and the [Commodity Futures Trading Commission] do that … The consolidated institutional regulator would focus only on the prudential issues applicable to financial institutions."
Richard Hillman, the managing director of financial markets and community investment for the Government Accountability Office, pointed to several GAO reports that make a case for further consolidation.
"Our analysis indicated that additional opportunities exist beyond the Treasury's proposal for additional regulatory consolidation that could further decrease fragmentation in the regulatory system, reduce the potential for differing regulatory treatment and improve regulatory independence," he said.
