April 03, 2012
Can You Really Choose Your Bank Regulator?
Posted by David Zaring

In the United States, the answer is yes, and that ability to choose is often thought to be a reason why regulators tread softly - agencies don't want to lose their fee-payers.  But the fact is, there is not a rash of charter switching in this country - Dain Donelson and I checked out which thrifts switched in or out of their charters, and how they did during the financial crisis, and it turned out that these switchers, even though they included housing crisis disaster poster child Countrywide, weren't particularly good or bad apples, in aggregate.

The Times today reports that the thrifts left in America are increasingly abandoning their thrift charters, now that their regulator has been combined with the federal bank regulator, the Treasury Department.  If it is a trend - and it's not totally clear that it is, there's a distinct commitment to anecdata in the Times article - then it would put some credence back into the "why do we let banks choose their charter?" question.  Thrifts were supposed to have the easy regulator, and it could be that the state- and credit-union regulators they are allegedly switching to are easier still.

But the good thing about those switches is that they come with consequences.  Credit unions operate as non-profits under unholy restrictions, and state chartered institutions may (though probably should always) have to give up their FDIC insurance.  That wasn't the case for national thrifts switching to national banks and vice versa.  If the decision to change your regulator means you need to change your business model, than one can perhaps see a basis for offering financial institutions the option.

Financial Crisis, Financial Institutions | Bookmark

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