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How the Banking Industry Is Like Bad Reality TV

I don't have a lot to add to Binyamin Appelbaum and Zachary Goldfarb's report that the Obama administration is weighing the creation of a single agency to regulate the whole of the banking sector. It's a good idea! The devil is in the details! The banking industry hasn't exactly lost a lot of battles in the Senate lately! Etc!

But I do have a useful link. To set it up, note these paragraphs explaining the basic problem:

The new regulator would assume responsibility for the safety and soundness of banks, currently divided among the Fed and three other agencies: the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. The OCC and the OTS would probably disappear, while the Fed and the FDIC would retain other responsibilities.
Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.

But they tend to make that point in fairly boring terms. Not so for the dedicated populists over at NPR's Planet Money. "In the best tradition of 'The Bachelor,'" they write, "financial institutions get to choose from a small flock of regulators. Those regulators collect fees for their work, so they're hot to woo potential companies. The Planet Money Players, with special guest Dina Temple Raston, show you how it's done as they vie for the affections of one Adam Isaac Gavidson, better known as AIG." You can download the podcast here.

By Ezra Klein  |  May 28, 2009; 9:10 AM ET
Categories:  Financial Crisis , Solutions  
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Comments

As a long time banker, I can assure you that regulators do NOT incent me to pick the most lax regulator. They're beaurecrats; they'd *prefer* you went to the other guys so they don't have to fool with you.

Posted by: Wyatt_Earl | May 28, 2009 9:23 AM | Report abuse

not exactly banking, but here's Luigi Zingales (U Chicago) on the future of securities regulation

http://www.feem.it/NR/rdonlyres/FAB415B4-2155-4D12-97A7-08BB76628C7F/2806/7092.pdf

Posted by: bdballard | May 28, 2009 9:39 AM | Report abuse

Thanks for that, Bdballard. Will read it today.

Posted by: Ezra Klein | May 28, 2009 10:19 AM | Report abuse

I lost all respect for Planet Money when they came on Maddow's show and basically blamed consumers for the current recession and not the trillions lost by wall street millionaires hyperleveraging CDOs and MBS with my 401 K. It is true that consumer debt was at an all time high, but that is a consequence of wages for 90% of workers basically staying flat (ie going down when inflation is added in) for the last 30 years of crony capitalism. Also, banks that made these bad loans and extended credit to people that couldn't afford it got bailed out while the actual people that needed the money got squat.

Planet Money: Apologists for corporate bankers.

Posted by: srw3 | May 28, 2009 11:42 AM | Report abuse

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