WASHINGTON Two top regulators offered dueling views of the federal banking agencies future at a major conference in Chicago last week.
In so doing, they made clear that talk of regulatory restructuring is more than idle chatter but still an uphill battle.
Federal Deposit Insurance Corp. Chairman Don Powell made good on a promise to put his agency on the front lines of sensitive policy debates by tackling one of bankings thorniest issues whether to realign or consolidate the four agencies that oversee banks and thrifts.
In a speech Friday that put him at odds with at least one fellow regulator, Comptroller of the Currency John D. Hawke Jr., Mr. Powell slammed the current system as inefficient and bloated. Furthermore, he said that regulators had moved too slowly to adopt new policies in response to shifts in financial services and have been timid in confronting the need for restructuring.
It is troubling to me that politics or questions of Washington turf often inhibit a candid discussion of these issues and perhaps would even inhibit reform, Mr. Powell said in a speech before the Federal Reserve Bank of Chicagos Conference on Bank Structure and Competition.
In todays banking industry, innovation is the norm and in many respects we regulators have not kept up . I sometimes worry we regulators are riding the tiger we cannot afford to waste time on the lost efforts of process and procedure in Washington, D.C.
Mr. Hawkes speech a day earlier was less dire and defended the status quo. As illogical as it might be, the present system works pretty well, he said at the Chicago conference.
Mr. Powell also surprised some observers by responding to one of Mr. Hawkes key issues the fee disparity between state and national banks. Mr. Hawke has repeatedly pressed his plan to take the cost of bank exams for all institutions out of the deposit insurance funds an idea that has been opposed by Federal Reserve Board Chairman Alan Greenspan and Mr. Powell but has not generated much public debate. (National banks pay the OCC every year for their exams, while state banks only pay their state regulator every other year, and pay nothing for their federal supervision.)
Mr. Powell said he could consider Mr. Hawkes proposal but only with one important caveat. If FDIC funds were used by the OCC, he said, the insurance agency should have some say in how they are used.
It is hard for me to agree that the insurance funds should be used to fund the Treasury agencies operation without any accountability to the FDICs board of directors for how the money is spent, Mr. Powell said.
In the meantime, the FDIC chairman said, he would be willing to make more FDIC supervisory resources available to the OCC and the Office of Thrift Supervision for any troubled banks and thrifts in order to save costs.
Mr. Powell is proceeding headlong into an area that has been a perennial topic among lawmakers, the industry, and government agencies but one that often gets bogged down by the natural inertia of entrenched bureaucracies. He said he plans to host a conference on the issue in the fall.
The issue reemerged because Sheila Bair, the outgoing assistant secretary for financial institutions at the Treasury Department, raised it in several speeches last year. Treasury later hired J. Patrick Cave, the former chief financial policy adviser to Rep. Richard H. Baker, R-La., in January to develop a plan to make the system more efficient.
But it is an issue that raises a host of questions with no easy answers, and could prompt myriad proposals from the merging of the OCC with the OTS to giving control over most bank regulation to the FDIC or the Fed. Mr. Powell acknowledged that he is prepared to hear some ideas that he does not like, including stripping the FDIC of its supervisory duties and making it solely an insurer, and invited a public discussion of all alternatives.
In his speech, Mr. Powell said one reason for change is the current structures redundancy.
Why do we all maintain separate offices, separate regional offices, separate administration staffs, separate computer systems, separate contracting offices, separate personnel offices, separate data collection and dissemination facilities, separate economic analysis and research functions, and separate training facilities? Mr. Powell asked. I know that all of us are working to become more efficient in our operations. But what about this duplication of effort?
Mr. Powell estimated that the FDIC, OCC, and OTS spend more than $200 million a year on backroom operations to support supervisory activities. (It is not clear how much the Fed spends, he said.)
If we were able to achieve, collectively, a 20% reduction in this amount, we could pass on to the industry a savings of at least $40 million per year and likely much more, he said.
Barbara A. Rehm contributed to this story.
