DISQUS

Don · 5 months ago

Excellent post Morgan!

Captain Ned · 5 months ago

Yep, that's what I'd say, and I'll be even more right if and when this abomination gets signed into law.

I also agree that we have all the laws we need, especially at the state level. I definitely agree with the resources issue. Most state-level banking departments are self-funded through licensing fees and assessments, so we can never take in more than we spend. When crunch time hits our revenue goes down, so we shrink when we should grow.

Here's my simple way of doing things:

All bank-level activity is regulated primarily by the FDIC. FDIC is lead agency on every bank exam; the states, OCC & Fed can participate jointly but have no lead role beyond enforcement of jurisdiction-specific issues. Safety & soundness is solely FDIC's call. Legislation is passed to remove the Federal preemption on activity by subsidiaries and d/b/as of Federally-chartered institutions. If you want to benefit from the Federal preemption, you need to do it in the name of the bank whose deposits FDIC insures. You need to buy the reputation risk. If you wish to hide the business in subsidiaries, you're fully subject to state-level law. OTS is closed and the Home Owners Loan Act repealed. Federal thrifts either convert to National Bank Act institutions or state-chartered institutions.

I'm no fan of giving the Fed the systemic risk powers proposed, but some level of systemic risk authority needs to be there if FDIC has a bad day and doesn't clamp down when it should. I've got no good way of structuring this in advance because the next crisis won't look like the last few. I think one good thing would be a single term for any Fed Chair. We all put our faith in Greenspan for far too long, only to be hosed in the end.