The Banking Commission would be
mainly concerned with the safety and stability of the banks. This would
encourage conservative regulations, and could inhibit economic growth. The Fed
clearly has a hands on knowledge of the banking system. The common indicators of
monetary policy - the monetary aggregates, the federal funds rate, and the
growth of loans - are all influenced by bank behavior and bank regulation.
Understanding changes and taking action in a timely fashion can be achieved only
by maintaining contact with examiners who are directly monitoring banks (Syron
7).
The banking system is what ultimately determines monetary policy. It is only
common sense to have personnel in the Fed that have a better understanding of
the system other than just through financial statements and examination reports.
The Fed also needs the authority to change bank behavior that is inconsistent
with its established monetary policy and with financial stability. This requires
both the responsibility for writing the regulations and the responsibility for
enforcing those regulations through bank supervision. State banking charters
have already started to be affected. Under the proposed plan, state chartered
banks would be subject to two regulators. While the federal bank would have only
one. Thus, making the state bank charter less attractive. However, an increasing
number of banks are opting for state supervision. It turns out that many banks
are afraid of losing existing freedoms, or of failing to gain new ones, if
supervision is centralized.
State regulators have given their banks more freedom
than federal ones: 17 now permit banks to sell insurance (and five to underwrite
it, 23 allow them to operate discount stockbrokers and a handful even let them
run estate agencies (Anonymous 91). The FDIC has two main criticisms of the
Treasury's plan. First, FDIC Chairman Tigert believes that it is very important
that there be checks and balances in the system going forward (Cocheo 43).
Second, Tigert believes that, since the FDIC is the one who writes the checks
for bank failures, the FDIC should be allowed to keep its independence. It is
necessary to maintain the checks and balances of different agencies. This
separation is necessary because of the differences in examinations of the
different regulatory agencies with respect to the same institutions. It is
important that the independent [deposit] insurer have access to information
that's available not only through reporting requirements, but also through
on-site examinations (Cocheo 43). Tigert explains that the FDIC must keep backup
examination authority. As well as maintain the ability to conduct on-site
examinations of all institutions it insures, not just the state-chartered
nonmember banks it supervises directly. She agrees with those who say there is
no need for duplicative examinations, but insists FDIC must be able to look at
institutions whose condition or activities have changed drastically enough to be
of concern to the insurer. While consolidation of the bank supervisory process
is overdue, issues of bank supervision and regulation affect the entire economy.
There is no way to tell what is in store for banking regulation in the future.
It is known, however, that we must beware that all the regulatory agencies in
place now, are in place for a reason. Careful thought and debate must be
undertaken before any reform is made. In the end, Americans seem no more
inclined to tolerate concentration among regulators than they are among banks.
