Why is There So Little Regulation in the U.S. Banking Industry?
Why is There So Little Regulation in the U.S. Banking Industry?
When people think about the 2008 economic disaster, many wonder how such a thing could have happened. It was such blatant abuse of the system that it seemed improbably the banking industry could have gotten away with selling securities based on bad loans. It is true that the American banking system is highly regulated by government entities such as the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency. There are laws in place that detail what the banks can and cannot do with their consumer's money. But just because there are laws and regulations in place does not mean they are enforced very well.
The first problem is that government cutbacks have reduced the staff in many of these regulatory offices. Some offices have been closed with staff being shuffled under a different supervisor from another governing body. However, less people only means a great work burden for the people who are left and, unfortunately, things fall through the cracks. Someone may complain that a bank is breaking the law but nothing gets done because the complaint is sitting underneath a large pile of other complaints and lawsuits.
Another reason banking regulations may have little effect on the behavior of banks is because the regulations, themselves, are always changing. This is most likely due to the government lobbying done on behalf of the banks. It is no secret that big corporations pay people to lobby government officials to change the laws in their favor. Banks are no exception. Although many well meaning politicians have put forth bills designed to address the problems and abuses that are rampant in the banking industry, they often face an uphill battle getting them approved because the people lobbying for the banks have managed to get enough people on their side to oppose the bill.
Lastly, banks pay for lawyers to find loopholes for them to do what it is they want to do. It is unfortunate but many of the regulations in place can be worked around with a little legalese. It is up to the American people to vote government officials into office who will close those loopholes and enact tougher legislation that actually prevents banks from causing crises like the one the world experienced in 2008. In the meantime, it is best to protect yourself by asking lots of questions and always reading every agreement before signing it so you know exactly what you are getting yourself into.
Oscar E. Diaz
Questions and Answers
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