Banking
Banking So Much for That Plan More than 70% of commercial bank assets are
held by organizations that are supervised by at least two federal agencies;
almost half attract the attention of three or four. Banks devote on average
about 14% of their non-interest expense to complying with rules (Anonymous 88).
A fool can see that government waste has struck again. This tangled mess of
regulation, among other things, increases costs and diffuses accountability for
policy actions gone awry. The most effective remedy to correct this problem
would be to consolidate most of the supervisory responsibilities of the
regulatory agencies into one agency. This would reduce costs to both the
government and the banks, and would allow the parts of the agencies not
consolidated to concentrate on their primary tasks. One such plan was introduced
by Treasury Secretary Lloyd Bentsen in March of 1994. The plan called for
folding, into a new independent federal agency (called the Banking Commission),
the regulatory portions of the Office of the Comptroller of the Currency (OCC),
the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and
the Office of Thrift Supervision (OTS). This plan would save the government $150
to $200 million a year. This would also allow the FDIC to concentrate on deposit
insurance and the Fed to concentrate on monetary policy (Anonymous 88). Of
course this is Washington, not The Land of Oz, so everyone can't be satisfied
with this plan. Fed Chairman Alan Greenspan and FDIC Chairman Ricki R. Tigert
have been vocal opponents of the plan. Greenspan has four major complaints about
the plan.
First, divorced from the banks, the Fed would find it harder to
forestall and deal with financial crises. Second, monetary policy would suffer
because the Fed would have less access to review the banks. Thirdly, a
supervisor with no macroeconomic concerns might be too inclined to discourage
banks from taking risks, slowing the economy down. Lastly, creating a single
regulator would do away with important checks and balances, in the process
damaging state bank regulation (Anonymous 88). To answer these criticisms it is
necessary to make clear what the Fed's job is. The Fed has three main
responsibilities: to ensure financial stability, to implement monetary policy,
and to oversee a smoothly functioning payments system (delivering checks and
transferring funds) (Syron 3). The responsibilities of the Fed are linked to the
banking system. For the Fed to carry out its job it must have detailed knowledge
of the working of banks and financial markets. Central banks know from the
experience of financial crises that regulatory and monetary policy directly
influence each other. For example, a banking crises can disturb monetary policy,
discouraging lending and destroying consumer confidence, they can also disrupt
the ability to make or receive payments by check or to transfer funds. It is for
these reasons that it is argued that the Fed must maintain a regulatory role
with banks. The Treasury plan would leave the Fed some access to the review of
banks. The Fed, which lends through its discount window and operates an
interbank money transfer system, would have full access to bank examination
data. Because regulatory policy affects monetary policy and systemic risk, it is
necessary that the Fed have at least some jurisdiction. The Fed must be able to
effectively deal with current policy concerns.
