Word: fdic
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Retail banks and investment banks have fundamentally different functions and thus different appetites for risk. Retail banks are low-risk ventures; their deposits are insured by the FDIC. Investment banking is more lucrative but involves greater risk. When these two businesses are placed under the same roof, the result is a severe conflict of interest...
...worst-case scenario, Dodd wants the SEC and FDIC to continue to have the power to dissolve failed banks, while the Administration would give power over big banks to the Federal Reserve. Dodd will also unveil new rules for over-the-counter-derivatives trading, whereas Frank has put off dealing with derivatives reform until next year...
...Dodd would like to gut bank regulators like the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Office of Thrift Supervision (OTS). He would give their power to supervise and regulate banks to a new, single bank regulator with power to set capital requirements and ensure stability. By contrast, the Frank-Geithner-negotiated bill in the House would do away with only the OTS, leaving the FDIC in charge of state-chartered-bank supervision, the OCC in charge of nationally chartered banks and the Fed in charge of complex...
...Consumer Financial Protection Agency (CFPA). In this Dodd, Frank and Geithner agree that a single agency should not be responsible for both ensuring bank stability (read: profitability) and protecting consumers. The CFPA would have rule-making, supervisory and enforcement authority to hunt abuses in lending and fee-setting. The FDIC would continue to exist as an insurer of deposits, while the Fed would continue to control monetary policy and oversee national financial stability...
Delays are happening in part because a recession is not a great time to buy a bank, and the FDIC is having trouble finding acquirers for troubled institutions. The FDIC could liquidate a failed bank or run it itself, as it did late last year with IndyMac. But those options tend to be even costlier. Meanwhile, "bad banks are more like fish than wine," says Bert Ely, a bank-industry consultant and an FDIC critic. "They get smellier with...