The financial services regulatory system, including insurance regulation, needs restructuring, says the chairman of the Federal Deposit Insurance Corporation.
“We should design a regulatory system that looks like our modern marketplace,” Donald E. Powell says in remarks to the Exchequer Club of Washington.
“We should have three federal regulators,” Powell says. “These entities would oversee the banking industry, the securities industry and those companies that choose an optional federal insurance charter.”
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Powell says that the nation should also establish an “authoritative forum” where the three regulators would meet, along with the Treasury Department and the Federal Reserve, on a regular basis.
This new body, he says, would sort through areas of overlap or sector-wide policy and make decisions on systemic risk, permissible activities and product regulation.
“This structure allows us to provide a federal safety net to Americas financial services industry that is streamlined and broad in scope, yet able to amass the technical expertise to deal with problems that arise in this or that sector of the financial marketplace,” Powell says.
This structure, he says, would make the functional regulation idea envisioned by the Gramm-Leach-Bliley Act more accessible and user friendly.
“It would ensure clear lines of authority and accountability,” Powell says. “And the process would be efficient enough to ensure the timely delivery of policy and consumer protection decisions on a consistent basis across the entire financial sector.”
Too often, he says, when financial regulators engage in turf warfare, the ultimate losers are the industry and the marketplace.
“The price is paid in lost opportunities and lost competitiveness,” Powell says.
The industry and the broader markets in the future will require answers from regulators much faster than they are provided today, he adds.
“In such a market, delay will be as good as denial,” he says. “A nimble and efficient regulatory structure that evaluates emerging issues and problems and moves quickly to address them is going to be increasingly important.”
Powell says that anyone can come up with 10 reasons why this structure wont work, and 10 issues he has not considered.
But his intent, he says, is not to spell out exactly how the new system would work.
His goal, Powell says, is to get both industry and his regulatory colleagues thinking about how a new and better structure would work.
In response, Jack Dolan, a representative of the American Council of Life Insurers, Washington, says that one of the encouraging elements of Powells speech is his assumption that there will be a federal insurance charter.