Turf Battles For Banking Regulators

In Economic Justice, Laws & Regulation, US Politics on July 17, 2006 at 11:18 am

The Bank Lawyers Blog discusses the continuing turf battle between federal regulators around Wal-Mart’s proposal to charter a bank (an “Industrial Loan Corporation”) in Utah. We have a primer on the application here.


A turf war like this happens because the regulators get their paychecks, quite literally and quite directly, from money they collect from the banks they regulate. Therefore, if regulators have more banks to regulate they have more money coming into their coffers and fewer banks means less money. If Wal-Mart is going to have a bank, each regulator want to be the one knocking on Wal-Mart’s door for a cut. Because Wal-Mart seeks to create this specific type of bank, the type of which is expected to explode in numbers in the coming years, each of the regulators wants to get in early and be the one responsible for looking after this growing sector.


Think of bank regulation like a high school cafeteria — if your high school had four different cafeterias, each with its own disciplinarian, odds are that the kids that want to steal someone’s milk money would go directly to the cafeteria with the most lax disciplinarian, knowing that they’re unlikely to get in trouble even if they get caught. (For those of you in the banking world asking about why a student chooses to go to a cafeteria they’re likely to get jumped in, imagine that the students in the cafeteria are unaware of the cafeteria they’re in and which disciplinarian regime they’re under). If that lax disciplinarian is literally and directly paid by the bully and will actually get paid more if the bully can steal more, the disciplinarian becomes more likely to turn a blind eye when someone gets beat up — after all, the disciplinarian is going to get their cut. If the disciplinarian speaks up in defense of the kid bleeding in the lunchline, the bully can just switch cafeterias and start pickin pockets over there.


Surely, more on this later.


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