So the new regulations proposed by the Obama administration call
for three new regulatory supervisors: Financial Services
Oversight Council, to coordinate heads of existing regulatory
agencies to identify systemic risks; the National Bank
Supervisor, which will regulate federally chartered banks;
a Consumer Financial Protection Agency, to prevent mortgage
and credit card dealers from confusing clients, and added powers
for the Fed to regulate non-bank financial entities. These are
all added to an already bewildering lineup of regulators --
reading through the Treasury Dept.'s
white paper, I read of at least three that I had never heard
of before.
I have a question about this proposed overhaul. In general I
think that simpler regulations are better than complicated
regulations, even if they are more restrictive, because at least
then at least the regulators can clearly identify illicit
actions, and the regulated can't waste everyone's time trying to
game the system with complicated maneuvers.
I wonder, though, whether we're reaching a point where more added
regulators and regulations make things so complicated that they
are actually counterproductive by their own standards. If you are
a systemically important bank, under the proposed system there
would be at least a half dozen big time regulators watching your
moves. Do you develop a check-the-box mentality? Do you start to
think to yourself, "well, if I'm not getting in trouble for it, I
must be fine"? (Obviously this is a gross simplification and
anthropomorphization.)
Remember, the argument for increase regulatory powers for the Fed
was that the Fed should have supervision over any firms it might
be later called upon to bail out. The flip side of that argument,
however, is that if the Fed has been supervising you all along
and you become insolvent, you can expect the Fed to bail you
out.
