According to an exclusive report in The Wall Street Journal, a private meeting between Treasury Secretary Timothy Geithner and the heads of several agencies that regulate parts of the financial system went about as badly as it could have. The paper reports that Geithner "blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation."
Geithner is seeing support fade for his ambitious plan to eliminate some smaller regulatory agencies and increase the power of the Fed and a new consumer advocacy office. The fact that the head of the Office of Thrift Supervision and others have said that the current system is fine will almost certainly undermine support in Congress for the initiatives.
It is impossible to guess if consolidating financial regulatory power in a smaller number of agencies is a more effective way to keep track of market trends and abuses of the system, like the ones that caused the crippling of the credit markets last year. Changing the structure of the regulatory system does not mean that it will work more effectively.
Federal regulators come and go, but the problems of derivatives trading and too much leverage cannot be solved by adding or subtracting agencies. If banks were forced to disclose their holdings in great detail, along with risk evaluations by their auditors, regulation would not have to be more aggressive. Transparency in reporting is the issue. Shifting around who regulates what is a waste of energy.
Douglas A. McIntyre is an editor at 24/7 Wall St.