GAO suggests consolidating federal financial regulators

(UPDATED) March 31, 2016 -- A recommendation that the federal financial regulatory agencies be consolidated – including the “federal agencies involved in overseeing the safety and soundness of depository institutions” -  was made in a February report by the U.S. Government Accountability Office (GAO), but released only this week.

The 136-page report (which notes that the 47 state regulatory agencies “are represented by the National Association of State Credit Union Supervisors”) recommends (among other things) that Congress should consider whether changes to the financial regulatory structure are needed to reduce or better manage fragmentation and overlap.

“U.S. regulators and others have noted that the structure has contributed to the overall growth and stability in the U.S. economy,” the report states. “However, (the structure) also has created challenges to effective oversight. Fragmentation and overlap have created inefficiencies in regulatory processes, inconsistencies in how regulators oversee similar types of institutions, and differences in the levels of protection afforded to consumers.” Specifically, the report recommends “consolidating the number of federal agencies involved in overseeing the safety and soundness of depository institutions.”

Additionally, the report recommends “transferring the remaining prudential regulators’ consumer protection authorities over large depository institutions to CFPB,” among other things.

The report notes that GAO has written on challenges to effective oversight in the past, for example noting that inconsistencies in examination activities of the depository institution regulators can result in different conclusions regarding the safety and soundness of an institution and difficulties identifying emerging trends.

Titled “Complex and Fragmented Structure Could Be Streamlined to Improve Effectiveness,” the report contains a response from NCUA, by agency Executive Director Mark Treichel, who wrote that support for a consolidation of federal financial regulatory agencies “would appear to need a careful review of the costs and benefits of that action.”

The Credit Union Times quoted NASCUS President and CEO Lucy Ito in its coverage of the report, who noted that the ssociation is still digesting the extensive report. The Times said she warned of the possible unintended consequences of regulatory consolidation.

“A number of state agencies that supervise credit unions are also charged with overseeing banks, thrifts, other financial institutions and other non-depository financial service providers. A broader view of the environment for financial institutions, in our experience, gives these state agencies a deeper understanding of the environment for all financial institutions – which has proven to be very effective in decision-making for credit unions,” Ito said in a statement, adding that diversity is one of the key hallmarks that has made the federal and state supervisory system effective.

GAO on streamlining federal financial regulation (GAO-16-175)