One of the things that struck me at the American Securitization Forum was the sheer number of governmental entities that regulate U.S. banks and financial markets. The conference featured speakers from the following agencies:
- United States Treasury
- Federal Reserve Board of Governors (sets interest rates and other policies)
- the 12 individual Federal Reserve Banks (regulate some banks)
- Securities and Exchange Commission (ignores complaints about guys like Madoff, approved Enron’s mark-to-market accounting scheme back in the mid-1990s)
- Office of Thrift Supervision (savings and loan regulation?)
- Office of the Comptroller of the Currency (part of Treasury)
- Federal Housing Finance Agency (regulates Fannie Mae, Ginnie Mae, FHA, VA housing)
- Federal Deposit Insurance Corporation (has started to insure hundreds of billions of dollars in interbank loans, TLGP)
Each of these agencies has some power to compel a bank to maintain a certain capital reserve or a financial institution to make or deny certain loans.
The patchwork of regulation historically has created the problem of shopping by banks. If a bank didn’t like how it was being regulated by the Fed, it could switch its charter and be regulated by one of the 50 states. In the current environment the patchwork makes the enormous changes being contemplated rather risky. The agencies may be acting at cross-purposes and it is impractical for all of the agencies to review a proposed new regulation. Simply making all of these decision-makers aware of what is going on would require years of meetings and conference calls.