Essay by gulmai April 2006

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So Much for That Plan

More than 70% of commercial bank assets are held by organizations that are supervised by at least two federal agencies; almost half attract the attention of three or four. Banks devote on average about 14% of their non-interest expense to complying with rules (Anonymous 88). A fool can see that government waste has struck again. This tangled mess of regulation, among other things, increases costs and diffuses accountability for policy actions gone awry. The most effective remedy to correct this problem would be to consolidate most of the supervisory responsibilities of the regulatory agencies into one agency. This would reduce costs to both the government and the banks, and would allow the parts of the agencies not consolidated to concentrate on their primary tasks. One such plan was introduced by Treasury Secretary Lloyd Bentsen in March of 1994. The plan called for folding, into a new independent federal agency (called the Banking Commission), the regulatory portions of the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS).

This plan would save the government $150 to $200 million a year. This would also allow the FDIC to concentrate on deposit insurance and the Fed to concentrate on monetary policy (Anonymous 88). Of course this is Washington, not The Land of Oz, so everyone can't be satisfied with this plan. Fed Chairman Alan Greenspan and FDIC Chairman Ricki R. Tigert have been vocal opponents of the plan. Greenspan has four major complaints about the plan. First, divorced from the banks, the Fed would find it harder to forestall and deal with financial crises. Second, monetary policy would suffer because the Fed would have less access to review the banks. Thirdly,