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Tag Archives: regulatory capture

Incompetence and Regulatory Capture at Washington Mutual

29 Thursday Apr 2010

Posted by Craig in bailout, Congress, Financial Crisis, financial reform, Politics, too big to fail, Wall Street

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David Heath, financial reform, Huffington Post, regulatory capture, Washington Mutual

Any questions about why financial reform legislation must have strict provisions for enforcement not left up to the discretion of the so-called “regulators” should be cleared up by David Heath’s extensive piece at the Huffington Post about incompetence, corruption, and regulatory capture at Washington Mutual:

“A recent Senate inquiry offered a rare peek into the secret world of bank examiners. What it revealed was that regulators had stopped regulating.

In the case of Washington Mutual, regulators found all sorts of trouble, from lax lending standards to high delinquency rates on loans, and yet failed to prevent the biggest bank failure in history.

Starting in 2003, examiners for the Office of Thrift Supervision found 545 problems at the bank. But the agency left it up to WaMu to track its own compliance with examiners’ recommendations, and took no formal action against the bank until it was too late.

[…]

A central lesson from the failure of Washington Mutual was that a system set up to prevent what happened utterly failed. For all the talk of reform, Congress isn’t addressing the problem of regulators who fail to do their job.

Regulators routinely deferred to bankers and market forces and engaged in petty squabbles over who had authority over the bank. So the question now is: Can Congress fix ineffective regulators themselves?

[…]

OTS’s own fortunes were heavily tied to Washington Mutual’s. The bank paid fees that amounted to 15 percent of OTS’s budget – more than any other financial institution under its watch. So it was in the OTS’s interest to make sure WaMu survived as a thrift, a bank that specializes in home mortgages.”

Can Congress fix it? Yes they can. Will they? Ay, there’s the rub.

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Regulatory Capture and the Washington/Wall Street Revolving Door

28 Sunday Mar 2010

Posted by Craig in bailout, financial reform, financial regulation, lobbyists, Politics, Wall Street

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banking industry, John Dugan, Office of the Comptroller of the Currency, regulatory capture, Wall Street revolving door. lobbyist, Washington

Regulatory capture: a term used to refer to situations in which a state regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating.

See also John C. Dugan, Office of the Comptroller of the Currency. Related subject: Washington/Wall Street revolving door. From today’s New York Times:

Houston

John C. Dugan, a former bank lobbyist, has been comptroller since 2005…and he’s responsible for regulating banks with national charters, including giants like Citibank and Chase. Like his recent predecessors, Mr. Dugan often takes positions that align with banks, even as they have come under withering attack for their role in the financial crisis.”

“For now at least, the nation’s front line for consumer financial protection resides on the 34th floor of a downtown office tower here…The Office of the Comptroller of the Currency operates this service center, fielding thousands of complaints each year about the nation’s banks…What many customers may not realize is that the man who oversees the operation used to represent the very banks they are complaining about.

Here comes the revolving door:

“A 2005 appointee of President George W. Bush, Mr. Dugan came to the O.C.C. after working for 12 years as a lawyer and lobbyist representing the banking industry. Before that, he worked for the federal government, including stints as counsel for the Senate Banking Committee and as an assistant secretary in the Treasury Department.”

Mr. Dugan’s term expires in August. Any guesses where he’s headed after that?

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