Federal regulators presented a united front yesterday in support of a White House plan to overhaul the system of supervising banks, thrifts and securities markets, perhaps breathing life into the chances for financial regulatory reform this year.
The chairmen of the Federal Deposit Insurance Corp., the Federal Home Loan Bank Board and the Securities and Exchange Commission endorsed the administration's proposals at a hearing of the House Government Operations subcommittee on commerce, consumer and monetary affairs.
Paul A. Volcker, chairman of the Federal Reserve System, is expected to support the proposals today in continued hearings on the Blueprint for Reform, issued 13 months ago by a task force headed by Vice President George Bush.
The united support of the regulatory agencies and a fresh push from the administration could improve the prospects for action on the report this year, according to some observers.
Bush met with committee members Monday to discuss the report, which proposes more than four dozen changes to streamline and simplify the way the financial industries are regulated.
The task force on financial services found that the current regulatory system suffers from "a significant degree of overlap and fragmentation, with occasional disputes concerning enforcement responsibilities among the differing agencies," Richard C. Breeden, the task force staff director, said at the hearing.
Seven different federal agencies regulate financial firms. Banks are regulated by three agencies; thrifts by two agencies; and credit unions, securities firms and commodities traders are each monitored by one agency, Breeden said, with state agencies adding various other layers of supervision.
Additionally, deregulation and technological breakthroughs have changed the financial markets and institutions greatly, he said. There are many new competitors, the distinctions between types of institutions have blurred, geographic barriers to competition have fallen, and new services and instruments have emerged.
The administration's proposals are designed to "get the regulatory system to catch up with the marketplace," Breeden said.
The blueprint would maintain the existing agencies and would create one, but would allocate responsibilities in a more efficient manner, Breeden said. The major proposals include:
* Creating a Federal Banking Agency within the Treasury Department to supervise all national banks and their holding companies.
* Reducing the number of agencies regulating banks to two from three. The Federal Reserve Board and the new banking agency would divide most of the duties now performed by the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
* Certifying state regulators to take on some of the FDIC's responsibilities for supervising state-chartered banks.
* Relieving the FDIC of regulatory duties that are not directly related to its role as an insurer of bank deposits.
"Our nation's financial institutions have entered a deregulated environment with substantially increased opportunities, but with comparable risks as well," said Rep. Doug Barnard Jr. (D-Ga.), chairman of the House subcommittee.
"Some fundamental reappraisals of the way financial institutions do business, the manner of their supervision, and the basis on which deposits are insured . . . are urgently in order."
In response to Barnard's question, each of the agency heads said that the administration's proposals would not have prevented recent bank failures or financial crises such as the one that led to the temporary closure of 71 Ohio thrifts.
The administration is hoping to submit its reform recommendations in a 270-page proposed bill to Congress within the next two months.