May 29, 2009

The Obama administration's plan to eliminate the government's multiple regulators from the banking marketplace is a noble idea, but it's also dangerous in that it takes the current system's fail-safe structure away.Top administration officials are close to recommending a single regulator for the banking system. The move would combine functions of the Federal Deposit Insurance Corp.Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency, according to a report in The Wall Street Journal. See related story.

The motivation behind the plan is to avoid the confusion that marked the weak response to the banking crisis as it ballooned out of control last year. The alphabet-soup of agencies were ill-coordinated as 25 banks failed including such major institutions as Washington Mutual Inc. and IndyMac.Administration officials also hope the single-regulator system will be more vigilant when it comes to systemic risk -- identifying banks too big to fail and moving to curtail the potential impact of any one bank failure on the nation's credit system.