#reform

Will the Trump Administration and an agreeable Congress really make sense of U.S. bank regulation? I’m not sure that what they do will indeed make sense, but there’s so little sense in the current system that I’m confident they’ll have no qualms about vaunting the institutional barricades that have thwarted due-process reformers since a Senate Banking chair proposed to create a “Federal Banking Commission” in the early 1980s.  Little in the U.S. regulatory colossus is in as much need of creative disruption as banking; the tricky bit will be to ensure that tearing down the current framework doesn’t leave it in ruins.

One reason for decades of inaction is the federalist structure of U.S. bank regulation, which allows for choice among a federal, state, or hybrid (state member) charter.  Whatever is done to federal bank regulation and federal charters, there is no way Congress will even try to redesign the state-based option.  It might expand preemption, but that’s as far as even this group of radicals will go because Congress will not allow each Member’s state to lose much in the federal reform many of them otherwise want.

Congress will also tread softly on one political demand:  that from small banks for a regulator more likely to listen to their pleas.  Right now, that’s the FDIC, which owes its supervisory role over the decades to small banks despite numerous grievous FDIC mistakes along with the agency’s tunning inability to resolve banks bigger than a bread box.

New leadership may remove …