consumer protection

On Bankstocks.com Thomas Brown has a clever piece about why a new consumer financial protection agency doesn’t make any sense.  He describes a commercial bank he visited where six FDIC consumer protection people were sent to examine the bank’s consumer loans.

Here’s the problem: the bank that the six regulators were planning to camp out in for two weeks doesn’t make consumer loans. It’s a business bank, whose consumer loan book consists of all of 20 loans that add up to a grand total of . . . . $1.3 million.

Do the math, and, per regulator, that works out to just over three loans of around $217,000 each. Two weeks! Thus you see the bureaucratic mindset at work. What in the world can those people be thinking?

I can’t think of a better illustration of why a new regulatory bureaucracy would be totally pointless.

As Brown notes, the U.S. financial system already has a myriad of regulators — and did that do anything to avert the financial crisis?

He cautions policymakers about hurrying to create a new regulatory watchdog:

But more regulation doesn’t equal better regulation-particularly when, under the current system, some bureaucrat somewhere thinks it’s a great idea for six people to spend two weeks poring over 20 loans. Before Congress creates any new agencies, it ought to have confidence that the existing ones are effective.

Check out his earlier piece on the same topic.

H/T Carl W.