Clinton seeks overhaul of banking regulation

WASHINGTON — WASHINGTON -- The Clinton administration yesterday outlined a plan to create a single agency to regulate the entire banking industry, saying that dividing the job among four agencies no longer made sense.

The four agencies were created over the past several decades in response to changes in the banking industry. But the face of the financial industry has changed drastically in recent years, as banks and savings and loans have expanded the services they offer consumers, consolidated over state lines through mergers, and responded to increasing competition from nonbank companies.


As a result, regulatory functions have increasingly overlapped, with some banks and savings and loans, for example, facing examinations from inspectors from two agencies at the same time. And with four agencies holding various positions on banking policy, some large banking companies have "shopped" for regulators who would be most approving of their various plans.

The administration contended yesterday that such overlap and lack of coordination and the resultant inefficiency are becoming increasingly costly to taxpayers.


"It just makes no sense to have four separate agencies, overlapping, often in conflict, in charge of our financial institutions," Treasury Secretary Lloyd Bentsen said.

The current system "was designed for another time that long since has passed," Mr. Bentsen contended. "We've got to get rid of the inefficiencies in our government."

The industry is now regulated by the Comptroller of the Currency, which is responsible for national banks; the Federal Reserve Board, which regulates bank holding companies; the Federal Deposit Insurance Corp., which insures bank deposits at savings and loans and banks; and the Office of Thrift Supervision, which regulates savings and loans.

The plan calls for the tasks of examining the books of banks and savings and loans and regulating their financial safety to be assumed by a new independent agency, the Federal Banking Commission.

The Federal Reserve would continue to control the nation's money supply, setting interest rates and influencing the course of the economy, but it would lose regulatory power over the nation's biggest banks.

The Federal Deposit Insurance Corp. would continue to insure deposits, and the states would continue to be the primary regulators of the banks they charter.

The heads of the Office of the Comptroller of the Currency and the Office of Thrift Supervision, both part of the Treasury Department, endorsed the proposal. But the Fed issued a statement saying it should continue to play a regulatory role.

The administration called the banking changes the latest step in what the White House likes to call "reinventing government."


Although the changes would have little direct effect on how consumers do business with banks, the administration contended that it would lower the costs of credit, one of its economic priorities.

Congressional leaders, who had urged the Administration to come up with a proposal to match those that have been presented for months in Congress, supported Tuesday's plan.

But there were signs of unease in the industry and among the agencies that regulate, and to some extent nurture, the banks.

In its statement, the Fed said its "hands-on role in banking supervision is essential to carrying out the Federal Reserve's responsibility for the stability of the financial system and is vital for the effective conduct of monetary policy. While the board recognizes the overlaps in bank supervision that have emerged in recent years, it is essential that any proposal for change preserves the important benefits of the current system."