Tags: Dodd | Frank | Fed | regulation

Interview With Dodd and Frank — Regulatory Reform

By    |   Tuesday, 03 Jun 2014 07:40 AM

In addition to the crucial issue of "too big to fail," a very important issue former Sen. Christopher Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., addressed at a recent conference sponsored by the Boston University Law School, an issue that ebbs and flows across the decades is whether the system of regulation of financial institutions should be reconsidered and reformed.

Dodd and Frank evidently forgot to mention this, but one of the earliest advocates of radical change was the late Sen. William Proxmire, D-Wis., who advocated consolidating all of the federal banking regulators under a single umbrella that would be held by the Federal Reserve. This writer admits having been swayed in those days by industry arguments against consolidation. Now the better view is to consolidate banking regulation, but not under the Fed.

In response to a question from panel moderator Amy Friend, chief counsel of the Office of the Comptroller of the Currency (OCC), Dodd recalled having developed a proposal in the fall of 2009 that would have combined the regulatory functions of all the federal banking agencies, but he decided not to pursue it.

Frank chimed in that Dodd-Frank abolished the Office of Thrift Supervision (OTS), which Frank quipped should have been called the "Office of Figleaf Dispensing." (This writer would say that about all of the financial regulators.) Frank continued that to reform regulation would entail taking authority from the Fed, and former Fed Chairman Alan Greenspan objected that the Fed needed to have this window on the banking system.

Minimizing the lobbying power of the largest banks, Frank contended it is effective only in a few cities, whereas the influence of the community bank and credit unions is felt everywhere, and he noted the community banks, represented by Cam Fine, CEO of the Independent Community Bankers of America, didn't want to share the same regulator as the big banks.

At this point Friend interjected that the OCC has 1,500 of these banks under its jurisdiction.

Dodd suggested that another issue ripe for reform is to look at the system of Fed's regional banks, which strangely placed two regional banks in Missouri, but none to the west until San Francisco. This writer has observed that a whole string of cow towns have regional banks and that the Fed system reflects the America of the 19th century.

Today, with modern communications, it ought to be possible and would be prudent to cut back to perhaps four regional Fed banks in New York, Chicago, San Francisco and maybe Atlanta.

According to Dodd, a search of minutes of the Federal Open Market Committee found that there was never any reference to bank regulation that the Fed claims is such an essential power for it to retain. This writer recalls testimony by former Fed Vice Chairman Alice Rivlin to that effect.

Therefore, it should be understood that a lobbyist, or even a group of them, should not be permitted to stand in the way of long-overdue reforms. Such reforms would include, at a minimum, getting the Fed out of the business of bank regulation and, if the OCC is to remain in business, getting it out of regulating community banks.

Thus, the Fed's authority would be transferred to the OCC so that it would have authority of national banks and their holding companies. Alternatively, and a better idea, would be to construct a new regulator based on the Government Accountability Office's authority to determine the fitness of government contractors.

(Archived video can be found here.)

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Robert-Feinberg
Besides the crucial issue of "too big to fail," which former Sen. Christopher Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., addressed at a recent conference, an issue that ebbs and flows across the decades is whether the system of regulation of financial institutions should be reformed.
Dodd, Frank, Fed, regulation
588
2014-40-03
Tuesday, 03 Jun 2014 07:40 AM
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