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Yesterday, the White House released proposed statutory languagefor the creation of a Consumer Financial Protection Agency (CFPA). The bill is long, but the CFPA, the brainchild of our co-blogger Elizabeth Warren, is by far the boldest part of the Obama financial restructuring plan. I’d also venture to say that it is the most important.
In this post I want to underscore why we need a CFPA. In future blog posts, I hope to come back to what a CFPA will and won’t do.
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One of the key points of debate over financial institution regulation reform is how many different bank regulators there should be and the extent of their respective bailiwicks. Some argue that the number of regulators is a secondary issue. It's not. It's a first tier concern. A critical flaw of our banking regulation system is the ability of financial institutions to engage in regulatory arbitrage, which has a corrosive effect on the quality of bank regulation. As long as there are multiple federal banking regulators supervising essentially equivalent financial institutions there will be regulatory arbitrage, which will inevitably undermine whatever statutory framework Congress sets forth for financial institution regulation.