Regulating the regulators


The Washington Post reported today that three federal agencies — the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the New York branch of the Fed — are “vying for control” of the $53 trillion market in “credit-default swaps,” contracts that insure financial institutions who make risky investments.

It’s an interesting look inside the infighting that plagues financial regulators. A horde of agencies oversees the financial world: the SEC, CFTC, two agencies to regulate banks, the Fed, the Federal Housing Finance Agency, the Treasury Department…

In the era of deregulation (now ending), that was fine. But our fragmented regulators are starting to become an issue. I’ve talked with several economists this week who say the current system doesn’t make sense: too many agencies, not enough coordination.

And on Capitol Hill today, at a hearing of the House Financial Services committee, former Congressional Budget office director Alice Rivlin said “the number of regulators should be less than it is now.”

There’s a precedent: The British consolidated their regulators into a single Financial Services Authority ten years ago. It hasn’t exactly been a successful regulator — the British government’s £50 billion bank bailout is proof — but that’s true in any industrialized country.

There’s precedent at home, too. Earlier this year, the Treasury Department proposed a merger between the SEC and CFTC.

So expect consolidation to be an issue when the next Congress takes up new financial regulations. Agencies are already trying to protect their programs, but it seems inevitable that at least some functions will be merged.


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