Monday, June 20, 2011
Embedded Bank Regulators: Bad idea?
Today the Wall Street Journal reported that the Fed and the OCC are proposing to embed regulators and examiners at financial institutions. They hope that having overseers on site will improve monitoring and control. I worry about the move though. Won't these "embeds" perhaps get too close to the people they are trying to regulate? Economists call this phenomenon "regulatory capture" - something that has occurred in many industries. In many ways, this is what happens to auditors who spend a ton of time on site at clients. They become close/friendly with employees at the client. It affects their independence.