Carol Realini: Regulating US banking

Written by Carol Realini Monday, 29 April 2013 20:44
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Taken from BankRUPT by Carol Realini - the book that has challenged the status quo in American banking


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One Regulator

Something that both consumers and bankers, Republicans and Democrats can agree on is that we have to make banking simpler. There are too many regulators with overlapping jurisdictions, and too many impediments that are so complex it may even make things riskier in the name of making it safer. The current regulatory tangle is an impediment to lowering costs, prevents innovation, and confuses consumers and businesses.


If you want to go into business doing money transfer nationally, you need forty-one state licenses. I went through the process; it’s very expensive and inhibits even good businesses from acquiring the licenses.


Once acquired, the overhead is extreme – and it is repetitive. I have been fingerprinted (using nineteenth-century paper forms) forty-one times. We experienced the same onsite audits from state after state. Since they all want the identical information, we were sometimes able to get two of them to come at the same time. One regulator could do the job. This is a legacy of a time when all banks were state banks, and there was no such thing as a national charter.


In a December 1, 2011 article by Barbara A. Rehm, American Banker discussed how banks are handling it. “More community banks have been choosing to swap out their federal charters for state charters. It’s a trend that has been intensifying for years… Today just one in four banks holds a national charter, raising serious questions about the sustainability of the current system. Since 2000, the number of banks supervised by the Office of the Comptroller of the Currency has plummeted forty-three percent, to 1,349. Over the same period, the number of state banks has fallen by nineteen percent, to 5,064.


“Mergers and failures have whittled the ranks of national and state charters. But choice has played a role, too. Since 2000, nearly three hundred banks have turned in national charters for those issued by a state. Over the same period, ninety-two state banks converted to a national charter.”[i]


Time for a change to one regulator. One that is strategic and doesn’t add impediments, but does put the right checks and balances in place.


I spent six years working with US regulators, and I can’t say enough about how convoluted the regulatory environment is. This complexity, overlap, and bureaucracy has many downsides including increased costs, inhibition of innovation, and resistance to evolution. Now another agency has been created because the regulators were not advocating and protecting the consumers. Contrast this with India’s RBI, where one national regulator moves deliberately to reform banking to meet the changing needs of the Indian population.


Our regulatory complexity, if not addressed, will hamper innovation in the United States.


I worry that the entrenched interest of the various regulatory groups will make this impossible to reform. But reform they must, or watch the US banks fall farther and farther behind the world in innovation. 

[i] Rehm, A. Barbara (2011) Silent Migration [Online] Available from: [Accessed, 2 March 2012]

Last modified on Monday, 29 April 2013 20:52

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