The administration's proposal for reform -- it's about 90 pages and it's available at Treasury.gov -- can pretty much be summarized as "take the current system and add a new layer or two." It proposes creating a Financial Services Oversight Council to increase coordination among the major financial regulators that already exist, consolidates the Office of Thrift Supervision and the Office of the Comptroller of the Currency into the new National Bank Supervisor office. And it hands the Federal Reserve a lot of expanded power to observe and regulate.
In short, the plan is Status Quo Plus. Plenty of financial bloggers and writers were hoping for a dissolution of the current system and replacement with a toothy, single regulator, and Simon Johnson goes so far as to say that the administration's plan will lead to the next major financial crisis.
I'm not convinced that a single regulator would be the way to go. One of the major problems of this most recent collapse has certainly been the toothlessness of the current regulators, who banks chose precisely because they seemed so unlikely to be strict. Where there's been overlap between regulators, both sides seem to have thrown up their hands and said, "Not my problem!", leaving banks to make up their own rules. And where there have been gaps, no one's been willing to step over their own lines to point out the problems. Essentially, it's been like a Wild Wall Street West where the U.S. Marshals and the town sheriff get into a jurisdiction dispute and let the bandits burn down the jail while they're busy squabbling.
So -- why would going to a single regulator be a better plan? One of the major problems with the financial system has been regulatory capture. Some offices get funding depending on how many banks they oversee, and all offices get expanded influence depending on who they deal with, so it's in their interests to attract new supervisees. If we went to a single regulator, that incentive would be reduced -- but the regulator would still be beholden to Congress for funding, staffing, and probably regular reporting, and Congress, as has been well documented, isn't exactly racing out to propose new, greater regulations on the banking industry. In fact, if we had a single regulator, wouldn't it be easier for the banks to buy it up?
I'm really curious -- what's to say that a single regulator, the devil we don't know, would be less likely to be captured than the proposed souping up of the complicated, highly political, constantly competitive and clashing system we have now?