Regulation Policy

Turf Wars Divide Banking Regulators

No fewer than six federal agencies and three types of state agencies regulate financial services businesses. The House of Representatives is scheduled to debate today the Financial Services Act of 1998 -- which supporters claim will set up a more rational, simplified and consolidated regulatory system. It would also do away with the Depression-era Glass-Steagall Act, which separates stock brokerages, banks and insurers.

Observers say the various regulators are engaged in a turf war -- each seeking to ensure it doesn't lose power to another agency. Generally speaking, banks and their regulators are on one side, insurers and securities firms on the other. But while big interstate banks generally support reform, smaller, independent banks are opposed.

  • Washington's banking regulators include the Federal Reserve Board, Federal Deposit Insurance Corp., National Credit Union Administration and the Treasury Department's Comptroller of the Currency and the Office of Thrift Supervision.

  • They impose rules on how bank holding companies, national banks, thrifts and credit unions use their capital and get into various lines of business -- as well as setting aside adequate reserves to try to protect depositors.

  • Also at the federal level is the Securities and Exchange Commission, which watches over large securities firms and polices the stock market.

  • At the state level are insurance commissioners, bank supervisors and securities regulators.

One example of the in-fighting under way is the disagreement between the Federal Reserve and the Treasury Department. The Fed supports the legislation, H.R. 10, but Treasury Secretary Robert Rubin opposes it and warns he will urge President Clinton to veto it if it is passed. The bill is being sponsored by Republicans.

Observers say the disputes may be very difficult to resolve and any vote would be close.

Source: Robert H. Gettlin, "Bank Regulators Lock Horns," Investor's Business Daily, May 13, 1998.

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