Chairman Donald E. Powell
Federal Deposit Insurance Corporation
Why Regulatory Restructuring? Why Now?
Exchequer Club, Washington, DC
October 16, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-108-2002 (10-16-02) Phil Battey (202) 898-6993
Good afternoon. Thank you for inviting me to speak here today.
I've been in Washington, DC, for just over a year now. I've enjoyed getting to know this
town a little bit, and getting to know you.
We've been busy at the FDIC. Over the past year, in addition to performing our core
missions of bank supervision, deposit insurance and bank failure resolutions, we've
been watching the economy and assessing its impact on the banking sector. We've also
reorganized the Corporation - resulting in about $80 million a year in savings. We've
selected a new management team and have set priorities rooted in our mission of
supervising banks, insuring bank deposits and resolving failed institutions.
We have also tried to join the debate on the significant banking policy issues of the day,
and that is important. My role is not to carve out my piece of turf and protect it at all
costs. I'm here to ensure we regulators are asking the right questions and making the
right decisions to ensure the safety and soundness of our financial system - and to
support an industry that is vital to America's economic interests.
The banking industry has gone through profound changes in the past 20 years. The
number of institutions has been reduced by about half. Fifteen hundred banks failed.
There were more than 9,000 mergers. This led to an unprecedented concentration of
banking assets in the largest banking organizations - not to mention better efficiency,
more economies of scale and better choices for the credit customer. Industry assets
increased threefold. Capital is up, earnings are at record levels. Innovations in credit
products resulted in revenues that are more diversified and an industry that is less
cyclical. In short, 20 years of change resulted in banks weathering this downturn better
than any of us expected.
So, despite its conservative reputation, banking has embraced change in a big way.
While clearly painful at times, this process of innovation and market evolution yielded
benefits that were impossible to predict when the hard decisions were made. As a
result, capital is allocated more efficiently in our society and we are all better off. And
the banking industry is better able to compete in a complex global economy. That is
today's reality.
Federal Deposit Insurance Corporation
Why Regulatory Restructuring? Why Now?
Exchequer Club, Washington, DC
October 16, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-108-2002 (10-16-02) Phil Battey (202) 898-6993
Good afternoon. Thank you for inviting me to speak here today.
I've been in Washington, DC, for just over a year now. I've enjoyed getting to know this
town a little bit, and getting to know you.
We've been busy at the FDIC. Over the past year, in addition to performing our core
missions of bank supervision, deposit insurance and bank failure resolutions, we've
been watching the economy and assessing its impact on the banking sector. We've also
reorganized the Corporation - resulting in about $80 million a year in savings. We've
selected a new management team and have set priorities rooted in our mission of
supervising banks, insuring bank deposits and resolving failed institutions.
We have also tried to join the debate on the significant banking policy issues of the day,
and that is important. My role is not to carve out my piece of turf and protect it at all
costs. I'm here to ensure we regulators are asking the right questions and making the
right decisions to ensure the safety and soundness of our financial system - and to
support an industry that is vital to America's economic interests.
The banking industry has gone through profound changes in the past 20 years. The
number of institutions has been reduced by about half. Fifteen hundred banks failed.
There were more than 9,000 mergers. This led to an unprecedented concentration of
banking assets in the largest banking organizations - not to mention better efficiency,
more economies of scale and better choices for the credit customer. Industry assets
increased threefold. Capital is up, earnings are at record levels. Innovations in credit
products resulted in revenues that are more diversified and an industry that is less
cyclical. In short, 20 years of change resulted in banks weathering this downturn better
than any of us expected.
So, despite its conservative reputation, banking has embraced change in a big way.
While clearly painful at times, this process of innovation and market evolution yielded
benefits that were impossible to predict when the hard decisions were made. As a
result, capital is allocated more efficiently in our society and we are all better off. And
the banking industry is better able to compete in a complex global economy. That is
today's reality.
How the government has responded to this market imperative has been a mixed bag.
We managed to catch up with the industry somewhat with the adoption of the Gramm-
Leach-Bliley legislation a couple of years ago. We've been less successful in
addressing the question of our regulatory structure - and how we in government
manage the financial safety net.
I keep coming back to a fundamental principle. We've seen amazing dynamism and
innovation in banking over the last 20 years. Yet we keep in place a regulatory system
rooted in an era that is truly gone with the wind. This perplexed me when I arrived on
the scene a year ago - and it perplexes me today. Despite the convergence, efficiencies
and economies of scale achieved by the industry, the regulatory community is still mired
in a confusing web of competing jurisdictions, overlapping responsibilities, and
cumbersome procedures. I know we can do better.
In the past six months we've seen the beginnings of a discussion between the
regulators about how we're organized. This has been gratifying. I was pleased Under
Secretary Fisher weighed in on the subject several weeks ago with a proposal for a joint
rule-writing body separate from the supervision function. The Comptroller has been
consistent in his press for a new funding mechanism. Both bring important issues to the
table and they are proving - contrary to popular belief - that it is not altogether taboo to
discuss this important subject.
Our concerns are not academic. Some of my friends argue the system works - meaning
no major breakdowns have occurred. Therefore, a discussion about how to make things
better isn't warranted. I disagree. Our goal should not be to design a system that works
in theory, or to come up with a better organizational chart. Rather, our goal should be a
regulatory structure that is better positioned to understand the market's evolution and
one that can make better, faster decisions. If we fail to do this, we risk hampering
needed innovations in the marketplace simply because the regulators do not grasp the
issues or cannot agree on how to respond.
Why do we need to talk about our regulatory structure? Why does this matter?
I'll tell you why it matters to me. I gave a speech last week in Phoenix in which I affirmed
my faith in the free market. No real surprise there. But I thought it important to stress
that the marketplace will lead the financial industry into new lines of business, new
combinations and new products - whether on the retail or wholesale side of the
business. The regulators - on the other hand - should ensure that market innovations do
not conflict with the public's basic interest in a safe, sound, and stable financial
infrastructure.
I have three criticisms of our current system of financial regulation.
First, I am concerned we spend far too many resources on duplication of effort and turf
competition. Choices are good - and we should preserve them where we can. But when
a variety of choices leads to a variety of regulators, I'm not sure the benefits are worth
the cost. The time we spend on coordinating our activities alone could be much better
spent fulfilling our primary mission - protecting the safety and soundness of the financial
We managed to catch up with the industry somewhat with the adoption of the Gramm-
Leach-Bliley legislation a couple of years ago. We've been less successful in
addressing the question of our regulatory structure - and how we in government
manage the financial safety net.
I keep coming back to a fundamental principle. We've seen amazing dynamism and
innovation in banking over the last 20 years. Yet we keep in place a regulatory system
rooted in an era that is truly gone with the wind. This perplexed me when I arrived on
the scene a year ago - and it perplexes me today. Despite the convergence, efficiencies
and economies of scale achieved by the industry, the regulatory community is still mired
in a confusing web of competing jurisdictions, overlapping responsibilities, and
cumbersome procedures. I know we can do better.
In the past six months we've seen the beginnings of a discussion between the
regulators about how we're organized. This has been gratifying. I was pleased Under
Secretary Fisher weighed in on the subject several weeks ago with a proposal for a joint
rule-writing body separate from the supervision function. The Comptroller has been
consistent in his press for a new funding mechanism. Both bring important issues to the
table and they are proving - contrary to popular belief - that it is not altogether taboo to
discuss this important subject.
Our concerns are not academic. Some of my friends argue the system works - meaning
no major breakdowns have occurred. Therefore, a discussion about how to make things
better isn't warranted. I disagree. Our goal should not be to design a system that works
in theory, or to come up with a better organizational chart. Rather, our goal should be a
regulatory structure that is better positioned to understand the market's evolution and
one that can make better, faster decisions. If we fail to do this, we risk hampering
needed innovations in the marketplace simply because the regulators do not grasp the
issues or cannot agree on how to respond.
Why do we need to talk about our regulatory structure? Why does this matter?
I'll tell you why it matters to me. I gave a speech last week in Phoenix in which I affirmed
my faith in the free market. No real surprise there. But I thought it important to stress
that the marketplace will lead the financial industry into new lines of business, new
combinations and new products - whether on the retail or wholesale side of the
business. The regulators - on the other hand - should ensure that market innovations do
not conflict with the public's basic interest in a safe, sound, and stable financial
infrastructure.
I have three criticisms of our current system of financial regulation.
First, I am concerned we spend far too many resources on duplication of effort and turf
competition. Choices are good - and we should preserve them where we can. But when
a variety of choices leads to a variety of regulators, I'm not sure the benefits are worth
the cost. The time we spend on coordinating our activities alone could be much better
spent fulfilling our primary mission - protecting the safety and soundness of the financial