How do you fix the federal regulatory system? Put the Office of the Comptroller of the Currency out of business and consolidate oversight, of course.
At least that’s the suggestion from former Federal Reserve Chairman Paul Volcker and his organization, Volcker Alliance, who released what the organization called a “long delayed, now crucial” proposal report Monday entitled “Reshaping The Financial Regulatory System.” In it, Volcker, who served as chairman of the central bank under presidents Carter and Reagan, recommends scrapping the OCC and merging various other regulatory agencies into a more manageable, more focused financial oversight enterprise.
A core argument of the report is that the government’s attempt to handle the economic disasters of the past several decades have resulted in a bloated and redundant regulatory infrastructure that has made a mess of its own efforts to police the nation’s financial system.
“Legislation, notably the Dodd-Frank Act of 2010, has addressed the substance of regulation,” Volcker said. “But it has done little with respect to the fragmentation, overlaps, and glaring gaps in regulatory and supervisory authority.”
The report criticizes the reliance on a regulatory environment that has in large scale been in existence since the 1930s. The financial system has experienced significant transformation in the past few decades, notably the consolidation of broad assets into “a handful of extremely large, exceedingly complex, globally active, and highly diversified institutions;” the rise of shadow banking, outside the traditional banking system; the increasing complexity of financial products; the rise in leveraging hedge funds and private equity funds; and the fragmentation of the equities market, the report stated.
Government oversight as these changes have taken over the financial landscape, the report asserted, have simply not kept pace, creating an inefficient system that itself has helped contribute to financial collapse. The Alliance called for a new Prudential Supervisory Authority to assume supervisory work currently split among (and often redundantly done by) the Fed, OCC, and the Federal Deposit Insurance Corp.
“Virtually every post-mortem of the financial crisis cites the convoluted regulatory system as a contributing factor in the financial meltdown,” the group said when announcing its report. “The Alliance’s aim is a simpler, clearer, adaptive, and resilient regime that is on par with the modern regulatory frameworks of other developed countries.”
The group’s 70-page report lays out a detailed framework of recommendations toward what is calls lasting reform. Volcker himself called upon Congress, the Obama administration, existing regulatory agencies, and financial institutions to “step up to the needed debate and set out an agreed program for reform suitable for the 21st century.”