Banking Law

A couple of months ago, we highlighted Fin Reg 21's Darrell Delamaide's assertion that Chris Dodd's charge that we need a single federal bank regulator in order to prevent the kind of "charter shopping" that helped to cause the great financial meltdown we're currently wading through was devoid of any evidence to support it.Today (again thanks to FinReg 21), we discovered that Philadelphia Inquirer reporter Harold Brubaker has gone one step further than Darrell by showing that the facts that do exist rebut Dodd's charge.

Banking law allows institutions to choose national or state charters, to be a savings bank or a commercial bank, and to deal more closely with the Federal Reserve or with the Federal Deposit Insurance Corp. as a regulator.

There is little evidence, however, that large-scale charter-switching has happened generally, or that the Office of Thrift Supervision, the alleged weak link in banking regulation, attracted large numbers of banks to its supposedly more lenient regulatory oversight.

From 1999 to 2008, 45 more institutions dumped the savings bank, or thrift, charter than adopted it, according to congressional testimony in August by John E. Bowman, acting director of the OTS. Thrifts, by definition, are supposed to focus on collecting deposits and making mortgages. Overall, just a tiny fraction of banks switch charters each year, according to data from the FDIC.

It's not easy to find a pattern in the charter "flips," as regulators call them, other than the particular needs of the institutions.

It's a terrible thing for a politician (or a trial lawyer, for that matter) with a story to spin when the facts get in the way. Nevertheless, that has stopped few of them from spinning until they--and the voters--are dizzy.

Let's hope that as more time elapses and more stories like these are written, the rush to "do something, anything" to "reform" and "restructure" the financial system is blunted and that what emerges from Congress is something based more on facts than on folk tales.