Further to my column of last week, the noises coming out of Washington about Barack Obama’s attempt to remake financial regulation are not encouraging. It is looking increasingly likely that the administration and Congress will fail to address the proliferation of overlapping regulatory bodies.
As the Wall Street Journal this morning notes, the Office of Thrift Supervision, which has been redundant since the Savings and Loans crisis of the early 1990s, may finally get absorbed into the Office of the Comptroller of the Currency. But a new body would be created to oversee mortgages and consumer products.
The “white paper” the administration is due to unveil on Wednesday may do various things to limit leverage and bring non-bank institutions such as hedge funds within the remit of regulators. But it looks like the hardest decisions of all – those on regulatory consolidation – have been ducked.
All this is an interesting contrast to the consolidation of regulation by the UK government when it created the Financial Services Authority in 2000 and swept a bunch of self-regulatory organisations and the banking supervision arm of the Bank of England into a single financial regulator.
True, this did not help the UK to regulate large banks any better than the US, given the scale of the financial crisis. On the other hand, fragementation of regulation caused its own particular difficulties in the US, with financial institutions picking and choosing among regulators.
The US administration has clearly decided that it simply cannot get any large-scale consolidation of regulation through Congress, given the vested interests involved. But that makes its response to the financial crisis seem more like a whimper than a bang.
