Banking Law

Jeff Gerth at ProPublica discusses something in an article he posted today about which those of us who deal with federal bank regulatory agencies are all too well aware: regulators with overlapping jurisdictions spend as much (or perhaps more) time jacking with each other as they do screwing the entities they're supposed to be supervising. They make the antagonists of "Mean Girls" look like Sisters of Mercy.

Backers of financial regulatory reform are gearing up for the final stretch in a yearlong effort to construct a new, streamlined architecture. But recent reports and testimony about the financial crisis suggest a crucial ingredient in any new structure is in short supply: cooperation among the watchdogs.

Gerth points out a number of cases where instead of cooperating for the greater good, different agencies fiddle while Rome burned:

• While Washington Mutual continued to gorge itself on tainted subprime, the OTS resisted the FDIC's efforts to take a tougher line with the OTS' biggest "customer."
• The SEC and the FRB kept critical information from one another in their flawless oversight of Lehman Brothers, whose flame out without a bail out was the immediate trigger that launched the "Great Recession," the benefits of which those of us who don't work on Wall Street are feeling on a daily basis.
• Ironically, the OTS, described as a "bit player" in the oversight of the Lehman superstructure, raised the biggest alarm about Lehman's thrift subsidiary, which the OTS considered had placed an unwise (and policy-violating) bet on commercial real estate. Apparently, the SEC and FRB paid as much attention to the OTS as I did to my eight year-old brother when I was in high school.
• The OCC blames the FRB for failures at Citigroup which, Comptroller of the Currency John Dugan insists, were at the holding company level, not at the subsidiary national bank level.

Gerth also points out that if Senator Dodd's scheme of financial reform is adopted, sitting at the top of the heap will be the same Timmy Geithner who admitted that he "could have done a better job" of keeping on top of Citigroup when he headed the New York Fed.

This problems presented by competing regulators are real, and always have been real true to a large extent. I'm not certain what legislative solution will eliminate the problem of regulators spending as much time back-stabbing and stiff-arming one another as they do paying attention to the banks they regulate. I mean, if it's not being done between the agencies, it's being done within the agencies. It's human nature.

Which, of course, brings us to the crux of the project that's continually underway in our nation's capitol: the perpetual progressive perfection of the hugely flawed human character through more laws and regulations, implemented and enforced by other hugely flawed human characters. Ultimately, it's a futile endeavor, but one that's been the bedrock of many a bank lawyer's retirement fund.

Onward and upward!