A Pragmatic Approach to the Phased Consolidation of Financial Regulation in the United States

The financial crises of the past year have put the issue of financial regulatory structure on the front burner of public policy for the first time in many years, making possible reforms on a scale not imaginable since the Great Depression. Dramatic increases in market volatility, unprecedented interventions by the Federal Reserve Board to sustain securities firms, palpable failures to protect consumers in mortgage lending markets, and lingering concerns over the competitiveness of the American financial services industry have all combined to put regulatory reorganization on the national agenda. While the United States employs more financial regulators and expends a higher percentage of its gross domestic product on financial oversight than any other major country,1 events of the past few years suggest that the country has not obtained a higher quality of supervision than other jurisdictions. Indeed, to the extent the current credit turmoil had its origins in the United States, one could quite plausibly claim that our regulatory structure has done a good deal worse than other more streamlined systems in protecting consumers and ensuring market stability. As the rest of the world has moved towards more consolidated forms of regulatory oversight, a natural question posed by recent events is whether the United States should also undertake such a regulatory reorganization and, if so, how such a reorganization should be accomplished.