FDIC Chair Urges Financial Regs Overhaul

By Steven Brostoff, Washington Editor

NU Online News Service, Oct. 17, 2:12 p.m. EST,Washington?The financial services regulatory system,including insurance regulation, needs restructuring, according tothe chairman of the Federal Deposit Insurance Corp.

"We should design a regulatory system that looks like our modernmarketplace," Donald E. Powell said yesterday in a speech to theExchequer Club of Washington.

"We should have three federal regulators," Mr. Powell suggested."These entities would oversee the banking industry, the securitiesindustry, and those companies that choose an optional federalinsurance charter."

Mr. Powell said that the nation should also establish an"authoritative forum" where the three regulators would meet, alongwith the Treasury Department and the Federal Reserve, on a regularbasis.

This new body, he said, would sort through areas of overlap orsector-wide policy, and make decisions on systemic risk,permissible activities, and product regulation.

"This structure allows us to provide a federal safety net toAmerica's financial services industry that is streamlined and broadin scope, yet able to amass the technical expertise to deal withproblems that arise in this or that sector of the financialmarketplace," Mr. Powell said.

This structure, he said, would make the functional regulationidea envisioned by the Gramm-Leach-Bliley Act more accessible anduser-friendly.

"It would ensure clear lines of authority and accountability,"Mr. Powell said. "And the process would be efficient enough toensure the timely delivery of policy and consumer protectiondecisions on a consistent basis across the entire financialsector."

Too often, he said, when financial regulators engage in turfwarfare, the ultimate losers are the industry and the marketplace."The price is paid in lost opportunities and lost competitiveness,"Mr. Powell said.

The industry and the broader markets in the future will requireanswers from regulators much faster than they are provided today,he added.

"In such a market, delay will be as good as denial," he said. "Animble and efficient regulatory structure that evaluates emergingissues and problems, and moves quickly to address them, is going tobe increasingly important."

Mr. Powell said that anyone can come up with 10 reasons why thisstructure won't work, and 10 issues he has not considered. But hisintent, he said, is not to spell out exactly how the new systemwould work.

His goal, Mr. Powell said, is to get both industry and hisregulatory colleagues thinking about how a new and better structurewould work.