U.S. Financial Market Regulation

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.

5 thoughts on “U.S. Financial Market Regulation

  1. There is no better regulator than an owner with his entire net worth and that of his family at risk. Public ownership of banks is like a free call option for those running the bank. I’m not against publicly traded banks but I believe they should probably trade at at a fraction of book value rather than a multiple of earnings.

  2. ASF 2009: http://www.americansecuritization.com/story.aspx?id=2282

    As Phil noted, there is a long list of participating regulatory types.

    It’s rather ironic that the term for some financial entities (namely, securities) are other than secure, as we have seen of late. Again, I might add. The regulators are stacked upon each other rather deeply; what chance is there of unwinding and starting over?

    Say what? We grounded all planes after 9/11. Too, Wall Street was closed.

    What we need, perhaps, is a several day moratorium on certain types of financial dealings to put into place a new structure. That structure would have been pre-defined, of course.

    The analog-digital switchover could be an example of the fact that problems are to be expected. Sweden switched from left to right driving side, over a weekend, years ago. So, planned major adjustments are not unknown.

  3. Where I live, bankers have a big say. So, State Banks do some weird stuff. Even the National Banks can be problematic. Now, as an aside, that opinion is from someone who deals with several banks across several states, for diversification.

    One local bank had been underpaying interest. It’s not by a large amount. But, tenths of a percent ramp up as the zeros append to a balance. Okay.

    I only found this since I was projecting and tracking, by month, all the active accounts. Of course, one would expect that the bank’s payout would approximate projection. The payouts did everywhere except for this one bank, nationally charted, by the way. Their payout minus was beyond some reasonable amount of error, meaning that I didn’t know the specific parameters being used (all other errors, of the other banks, were rounding types).

    Well, I told them that I was going to look more closely at this. Then I showed them where I noticed the change. I hadn’t said anything earlier for several reasons. They threw at me all the regs. Which I read. I asked about their interpretations.

    Anyway, in midst of our discussing this, they closed (unbeknownst to me until after the fact) all my accounts (not insubstantial), sent checks in the mail (not secured), and said to remove my stuff from my safety deposit box. Some of those accounts were IRAs, for which they were supposed to be trustees.

    So, I was out on the street. Fortunately, there was another bank to take my money to.

    Well, I started with the local banking regulators and was passed off to the OCC who turned out to be a paper tiger. Essentially, they let the bank take an ad hominem approach, that made me out to be a harasser. Yes!

    The gist of this whole thing was that the OCC could see some merit in my complaint, but they said for me to take it to court. Oh? That was last year under Bush’s realm.

    I wonder what might have happened under a different regime.

    Point? Well, some regulation is necessary. Much of it might just be pure noise. However, the solitary person ought not be left alone to face the wolves in a civilized society. Not unless one is Atlas, of course.

    Of course, this was also before the Madoff revelations. So, asking questions and getting thrown out for doing so ought to be a red flag, in some cases. Remember, some Madoff investors were shown the street.

  4. A nit on Madoff. He was not ignored. He was investigated eight times. That indicates a competence problem for the investigators rather than ignoring the complaints. In at least one case they were looking for the wrong thing. The complaint was possible front running. It appears he did no front running, just garden variety Ponzi fraud on a massive scale. An audit looking for front running would be looking in the wrong place and wrong set of books to notice a Ponzi fraud.

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