subject: The Dubitable Role Of Regulators In The Foreclosure Crisis As Regards Supervising Banks Is Raising E [print this page] The dubitable role of regulators in the foreclosure crisis and its supervision of banks are not only raising eyebrows but direct allegations have been made by the Treasury and FDIC. These lapses are raising hot questions about the new regulatory system the Obama government is planning to introduce without delay. The question is the effectiveness of the laws irrespective of whether they are new or old in they not enforced in the proper manner.
Professor Tyler Cowen of George Mason University said, A fire alarm might go off and someone might run to see what's happening, but there's no one there to put out the fire. Referring to the stress laid on de-regulation by the former Bush government he said cryptically that there was a greater willingness to look the other way.
Most of the banks that are failing are relatively young and they have sought the guidance of the regulators. For example ANB was 14 years old when it collapsed. 43% of the 62 banks that failed since January 2008 had made their entry less than 15 years ago.
MSB (Main Street Bank) of Northville in Michigan made its debut in 1st March 2004. It aimed at working with traditional products targeting the local community. But in less than a year the bank developed its own aggressive plans of sanctioning risky construction and house equity loans. It began to depend on the deposits made by brokers who were hunting around for high returns or hot money. These deposits were extremely volatile because the brokers do not stay more than six months in any one bank. They shift their funds to another entity that promises yet bigger returns.
FDIC was the primary regulator of MSB. Sensing the strategically riskier change of gear, in March 2005, it wanted the bank to submit monthly report of its movements. But the Inspector General of FDIC later noted that relevant questions were not posed as to why the banks were depending excessively on the money kept by brokers. Instead for 2006 May it set aside the requirement of submitting monthly reports. At that time the brokered deposits made up two thirds of the total deposits of this bank. The report of the Inspector General noted, More aggressive or timelier supervisory actions could have been taken to address risks of the plans, operations and financial condition. FDIC did not take any strong action until the bank failed only four years after it made its entry on October 2008.
