Streamlining America’s financial regulatory architecture was a major missed opportunity in the Dodd-Frank Act. Our existing structure is a patchwork of reactions to past financial crises that date back more than 150 years. Modernizing this patchwork system would improve regulation, enhance financial stability and increase economic growth. Today, we propose a road map for how to achieve these goals.

Each major U.S. financial regulator was created following a crisis. The need for Civil War funding birthed the Office of the Comptroller of the Currency (OCC). The Panic of 1907 brought about the creation of the Federal Reserve. The Great Depression resulted in the Federal Deposit Insurance Corporation and the Securities and Exchange Commission (SEC). Excessive speculation in the commodities market in the 1970s led to the Commodities Future Trading Commission (CFTC), while the savings and loan debacle left us with the Office of Thrift Supervision (OTS) in 1989. 


Dodd-Frank followed this reactionary pattern, creating the Consumer Financial Protection Bureau, the Office of Financial Research and the Financial Stability Oversight Council (FSOC).

Incidence of financial crises has decreased markedly over the last 150 years. Still, this plethora of financial regulators has hardly been a panacea. In fact, many observers argue that our complex regulatory architecture was a contributing factor; for example, no single regulator had responsibility for systemic risk. Additional regulators have needlessly created diffuse responsibility, regulatory arbitrage and duplicative regulatory regimes. Turf battles between financial regulators have delayed important rules. Regulatory burden has grown substantially, particularly for smaller institutions.

To its credit, Dodd-Frank addressed some of these problems in areas such as consumer financial protection. Dodd-Frank eliminated the failed OTS, but created three new regulators.  The FSOC has struggled at times to coordinate joint regulatory actions.

Regulatory consolidation has bipartisan support. Former Sen. Chris Dodd (D-Conn.) called for bank regulatory consolidation in his original legislation, which was dropped from the very law that bears his name. Former Bush Treasury Secretary Hank Paulson developed a blueprint for a far more unified regulatory structure. Furthermore, good policy strongly supports consolidation to focus regulators on their primary missions and improve accountability. It is difficult, for example, to find a convincing policy argument for keeping two separate capital markets regulators in the United States.  Difficult politics should not stop us from a renewed quest for a stronger regulatory system.

Past regulatory consolidation efforts have failed, mostly thanks to gridlock and turf battles. Absent a financial crisis, the political will to challenge the status quo has been lacking. Yet, this time can be different. Wise leadership from policymakers, regulators and industry could enhance financial stability with greater economic growth. Our road map to get there includes these steps, among many important recommendations:

We propose that the primary federal banking regulators need not wait for legislative action and should promptly enter into a pilot program to create a consolidated examination force. Regulators from each agency would work together with state supervisors to conduct unified bank examinations. Each agency would have full access to examination data and reports, eliminating a long-standing source of friction between regulators. Our concept is similar in spirit to FDIC Vice Chairman Thomas Hoenig’s idea of combining skill sets of several regulators into supervisory SWAT teams. Comptroller Curry is wisely rethinking bank examination and supervision and we believe our proposal to establish a single prudential bank regulatory agency would help him accomplish his objectives of improving regulatory efficiency and quality.

We need a single, modern capital markets authority with a unified voice. The SEC and CFTC should hold joint meetings and public hearings on rules with interagency overlap. While merging these entities requires legislation, nothing prevents the two agencies from working more closely together in the meantime. We urge the Commissions to show leadership and commit to hold, at least quarterly, joint public meetings and hearings. Eventually Congress must enact legislation and consolidate these agencies.

Our report, Dodd-Frank’s Missed Opportunity: a Road Map for a More Effective Regulatory Architecture, urges Congress to act. Ideally, it would act before our outdated and outmoded regulatory structure contributes to the next crisis. A more rational and modern regulatory architecture would preserve the dual banking system while consolidating regulators, strengthen the FSOC and OFR, and place all financial regulators on equal footing with direct funding that is not subject to political tampering.  Congress should start by holding hearings on the strengths and weaknesses of current regulatory architecture, using BPC’s goals and recommendations as a measuring stick. Regulators should act immediately to begin piloting joint and consolidated examinations. The stakes are too high to wait until the next crisis to act.

Neiman is the vice chairman of PricewaterhouseCoopers' (PwC) Global Financial Services Regulatory Practice and former New York Superintendent of Banks, and Olson is a co-chair at Treliant Risk Advisors and former governor of the Federal Reserve Board. Both co-chair the Bipartisan Policy Center’s Regulatory Architecture Task Force. To read the recently released report, click here.