Banking Regulation Captain Essay

Pages: 9 (2393 words)  ·  Bibliography Sources: 9  ·  File: .docx  ·  Level: College Junior  ·  Topic: Economics

If there had been (for example) no Office of Thrifty Supervision (which was responsible for allowing WaMu to make home loans with a giddy disregard for economic realities), at least many individuals would have taken it upon themselves to pursue some investigation on their own. However, with the knowledge that there were government agencies that were supposed to be overseeing the banking industry and other financial institutions, individuals were left to assume that these institutions were economically healthy. Senator Coburn made the following statement to officers of the Office of Thrift Supervision:

As I sat here and listened to both the opening statement of the Chairman and to your statements, I come to the conclusion that actually investors would have been better off had there been no OTS because, in essence, the investors could not get behind the scene to see what was essentially misled by OTS because they had faith the regulators were not finding any problems, when, in fact, the record shows there are tons of problems, just there was no action taken on it. ... I mean, we had people continually investing in this business on the basis & #8230; that OTS said everything was fine, when, in fact, OTS knew everything was not fine and was not getting it changed. (Levin, 2011, p. 208)

The Congressional subcommittee, after both hearing testimony and conducting a wide-ranging investigation into the paper trail detritus of the economic disaster.

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The subcommittee members came to a number of conclusions about why the regulatory agencies had failed to do their job and so failed to protect Americans from financial chicanery by the nation's banks, thrifts, etc. They summarized the key failings on the part of the agency leadership. Key among their findings was the fact that regulators, and especially those at the Office of Thrift Supervision, showed far too much deference to the corporate officers of the institutions that they were supposed to be supervising. (This phenomenon is known as "regulatory capture." )

Essay on Banking Regulation Captain -- You Assignment

Even one of those corporate officers who was supposed to be under regulatory supervision described the situation as one in which the Office of Thrift Supervision believed strongly that thrifts should practice 'self-supervision'. That regulators were so inclined came about from a variety of factors, Congress found, including the fact that on-the-ground investigators received little support from their supervisors and the additional fact (which was a direct result of the political direction of the Bush Administration) that their regulatory brief was so narrowly focused. The investigators had been rendered effectively toothless (Levin, 2011, p. 211).

OTS' deference to WaMu management appeared to be the result of a deliberate posture of reliance on the bank to take the steps needed to ensure that its personnel were engaged in safe and sound practices. The reasoning appeared to be that if OTS examiners simply identified the problems at the bank, OTS could then rely on WaMu's own self-interest, competence, and discipline to ensure the problems were corrected, with no need for tough enforcement action. It was a regulatory approach with disastrous results. (Levin, 2011, p. 215)

The above description is certainly not that of a rigorously regulatory attitude between WaMu and the Office of Thrift Supervision. This lack of any serious attempt to curtail activities of WaMu and other financial institutions reflected a Republican take on regulation.

This version of regulatory capture, as Davidoff (2010) writes, is a twist on what has been meant by this term because it is primarily a failure of regulatory leadership. Davidoff refers to this newer version of regulatory capture as ideological capture because it arises not so much from a too-intimate relationship between an industry an its regulators (although this still occurs too), but rather it features regulatory agencies that are headed by individuals who are not dedicated to the importance of regulation.

The reason is that the problem is not the old-style vision of regulatory capture in which the airline industry openly dictates to its regulators its governing rules, arranging for not only beneficial regulation but placing key people to head these regulators. This model no longer exists in financial sphere, if it ever did.

Instead, we have ideological and social capture of the top regulators. This is an issue that trumps what can be a model regulator at the bottom where the line people are quite competent, able and uncaptured, but the message from the top skews their effectiveness. (Davidoff, 2010).

The leadership of the regulatory agencies such as the Office of Thrift Supervision failed dramatically and repeatedly to rein in the companies that they were supposed to control so that they could not do the kind of serious and lasting harm that they did in fact do to the American financial system. But while they must take a good percentage of the blame, the leadership above them -- specifically the top-tier Bush Administration officials -- must also shoulder their portion.


Amy, D. (2007). Government is good.

Davidoff, S. (June 11, 2010). The Government's Elite and Regulatory Capture. The New York Times.

Frank, T. (June 24, 2010). Obama and 'Regulatory Capture'. The Wall Street Journal.

Levin, C. (2011). Wall Street and the Financial Collapse.

Protess, B. (May 3, 2011). U.S. Regulators… [END OF PREVIEW] . . . READ MORE

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How to Cite "Banking Regulation Captain" Essay in a Bibliography:

APA Style

Banking Regulation Captain.  (2011, October 1).  Retrieved September 28, 2020, from

MLA Format

"Banking Regulation Captain."  1 October 2011.  Web.  28 September 2020. <>.

Chicago Style

"Banking Regulation Captain."  October 1, 2011.  Accessed September 28, 2020.