As a banking lawyer who has ridden the waves of congressional responses to real or perceived voids in bank regulation, such as FIRA, DIDMCA, Garn-St. Germain, FIRREA, FDICIA, Riegle-Neal, Gramm-Leach-Bliley, FACT Act, Dodd-Frank, and numerous named legislation and acronyms in between since 1980, it is interesting to watch the recurring calls for a unified federal bank regulator. These calls appear about every eight to ten years, beginning with an effort at regulatory reform by then-Vice President George H.W. Bush during the Reagan administration. On the surface, regulatory consolidation appears to make sense—uniformity of rules and regulations as well as perceived cost reduction. However, such consolidation will not be beneficial to community banking.

The thrift industry serves as a historical example—and warning. The first of several blows to the thrift industry—deregulation of interest rates—occurred early in my career. There was one federal regulator of federal and state thrifts, the Federal Home Loan Bank Board (FHLBB), and one insurer, the Federal Savings & Loan Insurance Corporation. A single regulator seemed to do nothing to arrest the decline of the thrift industry. To the contrary, FHLBB action, with congressional help, seemed to hasten the industry's decline. With a single regulator, there were no competing interpretations or ideas other than those offered by the industry regulated. Absolute power may not have corrupted absolutely, but it stifled discussion and ideas.

Commercial banks, on the other hand, have long had choices of federal regulators and the pendulum has swung many times from one preferred regulator to the other. The Office of the Comptroller of the Currency (OCC) was perceived as a way around local politics, and this proved true early in my career when a group attempting to organize a de novo bank was denied a state charter, the denial rumored to have been the result of political influence. Within weeks, the application was retooled and sent to the OCC, which granted a charter within a few more weeks. This action had a beneficial after-effect of causing the state chartering authority to be less politically invested. Likewise, the decisions by the OCC gave my state statewide branching and ownership of insurance agencies, among other powers to which the local chartering authority conformed in the interests of parity.

State chartered banks—like state governments—can be more innovative, but, as illustrated above, are subject to local politics, while the OCC has historically provided some insulation from local politics. On the other hand, the OCC as a department of the United States Treasury has been perceived as being subject to prevailing political winds at the federal level, whether it be fair lending enforcement, troubled bank resolution, or large bank orientation. For the latter reason in particular, with elements of the other issues, we have seen a migration of community national banks to state charters.

State chartered banks may choose to be member banks regulated under the Federal Reserve System or nonmember banks regulated by the the Federal Deposit Insurance Corporation (FDIC). Both the FDIC and Federal Reserve System were designed to be insulated to a degree from political influence at the national level. For years the FDIC was viewed as friendly to community banks, particularly in regard to problem bank resolution, but we have seen a migration of state nonmember banks to member banks in addition to the migration of national banks converting to state chartered banks—but choosing to retain Federal Reserve membership. The reason for this migration is primarily the perception of examination focus politically influenced by the composition of the Board of Directors of the FDIC.

The regulatory burdens on community banks are not a product of having three federal regulators. To the contrary, the nuances of regulatory interpretation and examination focus have been beneficial to community banks, offering a degree of regulatory relief in addition to what can be viewed as healthy discussions over regulatory interpretation and turf. This is evidenced by the number of national banks converting to state charters and state charters choosing between being members and nonmembers. Consolidation of bank regulators will eliminate those nuances—but will not lessen in any way the cost or scope of the regulatory burden. Let's not spend time debating regulatory agency consolidation. Let's focus instead on meaningful relief from the regulatory burdens that have accumulated over the years based on congressional reactions to perceived abuses by punishing wrongdoers and the innocent alike.