Dodd embarks on an age-old quest

GOAL IS SINGLE BANK REGULATORCurrent patchwork has supporters, critics

Sen. Christopher J. Dodd (D-Conn.) this week joined the generations of dreamers who have advocated for eliminating the nation's muddle of bank regulators, arguing that a single agency would be more efficient and would end the ability of banks to choose the most lenient supervisor.

"The financial crisis," Dodd said Tuesday, "exposed a financial regulatory structure that was the product of historic accidents, one after another, over the past 80 years, created piece by piece over decades, with little thought given to how it would function as a whole and unable to prevent threats to our economic security."

But Dodd confronts a broad range of critics including bankers, regulators and fellow legislators who warn that his plan overlooks the strengths of the current patchwork and ignores the potential downsides of consolidation.

They argue that community banks and international behemoths need different kinds of oversight. They also note that the various agencies possess meaningfully different perspectives. The Federal Deposit Insurance Corp., for example, tends to look out for the interests of smaller banks, while the Office of the Comptroller of the Currency traditionally has been mindful of the concerns of larger institutions.

Bob Pasley, a banking consultant who has studied the history of proposals to consolidate the banking agencies, said that the Federal Reserve pressed Congress as early as 1921 -- less than a decade after the central bank's creation -- to streamline banking regulation by eliminating the OCC. The Fed renewed its push in the late 1930s.

"The development of the mechanism of supervision has been piecemeal in character," the Fed wrote in its annual report for 1938. "From this process the banking picture emerges as a crazy quilt of conflicting powers and jurisdictions, of overlapping authorities and gaps in authority."

By Pasley's count, members of Congress have since introduced at least 16 separate pieces of legislation proposing the consolidation of regulators into a single agency.

Under the current structure, four separate federal agencies oversee the country's more than 8,000 banks. Some banks also are subject to state supervision.

Dodd's plan would combine the functions of the OCC and the Office of Thrift Supervision, eliminating the thrift charter. It also would strip the Fed and the FDIC of their direct supervisory powers, leaving the Fed to handle monetary policy and the FDIC to clean up failed banks.

Over the years, the argument for consolidation has remained constant. A single agency would be less expensive. It could impose the same rules in the same way on all banks. It could be held accountable for its mistakes.

Dodd also said Tuesday that the current system had allowed some banks to shop for lax regulation. The Post reported in January that at least 30 banks since 2000 have escaped regulatory action by switching agencies.

But those arguments have always fallen short in the halls of Congress.