Former Top UK Financial Regulator Voices Support For Dodd Plan
Sir Howard Davies, the first chairman and chief executive of the U.K.'s Financial Services Authority, said supervision of the banking sector should be separate from control of monetary policy.
That, in essence, is the heart of the bill proposed by Senate Banking Committee Chairman Christopher Dodd (D., Conn.).
Dodd would strip the Federal Reserve Board of its consumer protection authority and regulation of bank holding companies. The bill leaves the Fed to focus on its core mandate of guiding monetary policy and serving as the lender of last resort to the U.S. banking sector. The Obama administration, by contrast, would allow the Fed to keep much of its supervisory power over the banking sector.
"My view is that it is, on the whole, preferable to divorce institutional supervision from monetary policy responsibility," Davies said in a telephone interview this week. "In that sense, I'm personally a Senate man rather than an administration man."
Davies' view isn't surprising. The FSA, established in 1997 by then Chancellor of the Exchequer Gordon Brown, won banking supervision powers from the Bank of England and other financial regulators.
At the time, Davies was deputy governor of the central bank in charge of overseeing the banks. He moved to the new FSA in 1998, in its shiny new headquarters down in Canary Wharf in London's East End, to become the agency's first chief executive and chairman.
The move to separate banking regulation from the Bank of England has been criticized by some quarters as it resulted in a lack of communication that led to the near-failure of Northern Rock, a U.K. bank the British government was forced to take over.
The Conservative Party, which is widely expected to win in a general election expected next spring, has vowed to return some regulatory authority to the central bank.
In contrast to Dodd's approach, House Financial Services Chairman Barney Frank (D., Mass.) is in lock-step with the Obama administration. Frank's bill would largely let the Federal Reserve retain much of its supervisory power over the banking sector.
Thursday, however, Frank's committee voted to approve a measure that would expand Congress' oversight powers of the Fed.
Davies said he was a strong believer in the creation of a systemic risk council, which both Dodd and Frank would accomplish.
"There should be somebody who is looking at the system as a whole--a task which can usefully be distinguished from the grubby business of detailed institutional supervision," he said.
Spokesmen for the Treasury and Frank didn't immediately respond to emails seeking comment for this article.
Dodd's legislation is similar to the U.K. experience in another manner: both involve merging several regulatory bodies into one agency.
In the U.K., nine separate regulators were joined to form the FSA. The agency added supervision of the mortgage and property and casualty insurance industries, leaving it as the sole regulator of the country's financial industry.
Kirstin Brost, a spokeswoman for Dodd, argues that her boss' plan is significantly different from what happened with the FSA.
"The last thing we would want would be to set up a U.K. style regulator," Brost said in an email. "The FSA in the U.K. merges regulations for banks, securities, insurance, and consumer protections into one agency."
Dodd would merge together four federal banking regulators, leaving a number of independent agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Still, Dodd's bill is similar to the U.K. overhaul since it would remove banking supervision from the Fed, and merge a number of regulators together.
Frank's proposal, on the other hand, would only merge two regulators, leaving the regulatory field far more crowded than Dodd's plan.
Davies, now the director of the London School of Economics, said that looking at the 2008 global financial collapse in hindsight, a country's regulatory structure didn't necessarily matter. Everyone was caught unaware by the severity of the crisis.
"Whatever system you had before the crisis, you want the other one," Davies said. "There is zero correlation between regulatory structure and success before this crisis."
-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com
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Publié le 20 novembre 2009 Copyright © 2009 Dowjones
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