Sheila Bair Writes Op-Ed on Super-Regulator

Sheila Bair, head of the FDIC has written a New York Times op-ed piece, The Case Against a Super-Regulator:

The truth is, no regulatory structure — be it a single regulator as in Britain or the multiregulator system we have in the United States — performed well in the crisis.

The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the nonbank shadow financial system, and by using unregulated over-the-counter derivative contracts to develop volatile and potentially dangerous products.

The reference to derivative contracts and shadow banks is almost certainly made with AIG specifically in mind. Assiduous Readers will know that I have no problems with these two things … what made AIG a systemic threat was regulatory incompetence that allowed regulated institutions to have a lot of AIG paper on their books without sufficient collateral or capital charges.

We can’t put all our eggs in one basket. The risk of weak or misdirected regulation would be increased if power was consolidated in a single federal regulator.

Hear, hear!

One advantage of our multiple-regulator system is that it permits diverse viewpoints. The Federal Deposit Insurance Corporation voiced strong concerns about the Basel Committee on Banking Supervision’s relatively relaxed rules for determining how much capital banks should have on hand.

If I remember correctly, it was the FDIC that insisted that the leverage ratio be maintained as a regulatory measure.

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