Bankin’ Bits

Senator Chris Dodd, Chairman of the Senate Banking Committee, issued prepared remarks at a Senate hearing in which he pushed for the creation of a single bank regulator, with the agency’s purpose being to end the “pass-the-buck excuses” from regulators.

Mr. Dodd was not the only person advocating a single federal regulator before the Senate Panel.  The GAO’s managing director for financial markets, Richard J. Hillman, stated that the current model of overlapping federal banking agencies creates problems for sound regulations because it forces regulators to compete for funding from the institutions they regulate.   The former head of the OCC, Eugene Ludwig, reported that bankers sometimes threatened to seek out a different regulator when they became frustrated with the OCC’s regulation.

Tennessee Senator Bob Corker took a different approach, noting that a single regulator would, in reality, be nothing but a “super OCC”—which he criticized for being “the most procyclical organization that we have.” Senator Corker opined that OCC policies not only helped create the housing bubble, but also worsened the financial crises by ordering banks to cut back on lending at the height of the credit crisis. 

Although he attempted to assuage the concerns of community bankers by singling them out as parties that would not be subjected to higher scrutiny by the proposed single regulator and were “not to blame” for the financial crisis, his goodwill may be tapped out.  In light of the difficult-to-interpret compensation restrictions for community banks participating in the TARP Capital Purchase Program—restrictions that Senator Dodd authored—he will likely encounter problems convincing the community banking audience that he is capable of controlling legislation attentive to their unique needs.