Don't FIRA the regulator

10 November 2009 By Rob Cox Follow @rob1cox

Its centrepiece is the creation of a single überregulator for banks. This has its charms. It would avoid giving new power to the Fed and should reduce the risk of regulatory capture. But the experience of Britain s FSA suggests structure alone won t ensure effective regulation.

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Christopher Dodd, chairman of the Senate Banking Committee, proposed the creation of a single banking regulatory agency the Financial Institutions Regulatory Authority that would encompass the supervisory functions now held by the Office of Thrift Supervision, Comptroller of the Currency and bank supervision arms of the Treasury, Federal Reserve and Federal Deposit Insurance Corporation.

The bill differs from one proposed by the House Financial Services Committee chairman Barney Frank – and endorsed by the White House – which would merge the OTS and OCC, while granting the Fed powers to monitor systemic financial risk.

Dodd's bill proposes the creation of an Agency for Financial Stability, which would have the power to dismantle institutions deemed too big too fail. The agency would be nineperson board including the Treasury Secretary, chairmen of the Fed, FDIC, SEC, CFTC and an independent director chosen by the President.

The Dodd bill proposes the Securities and Exchange Commission be selffunded through fees levied on its regulated entities. It does not endorse a merger of the SEC with the Commodities Futures Trading Commission. It proposes enhancing shareholder rights to include a say on pay and votes on directorships.

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