Seven years ago, when I had just begun my stint as the Banking Superintendent of the State of New York, I found myself sitting at a fancy dinner party in Manhattan. I was complaining to the financial mogul on my left that there were too many regulators involved in the financial system in the US, that no one knew what regulator was responsible for what, and that there must be problems at financial institutions which were falling through the cracks. My dinner partner replied that this was a ridiculous notion, the regulatory system was just fine (read: it suited his purposes), and that everybody was very clear as to what regulator was responsible for what. So, I asked him if he knew who was the regulator for the bank where he had most of his accounts -- was the bank chartered by the State of New York or by the OCC -- the national charterer of banks. He replied that of course it was the State. I asked him which bank -- he responded Citibank. I told him he was wrong. Citibank was chartered by the OCC and had been for years.
This incident made a huge impression on me. If this man, who had been in the financial sector for decades, and had been extremely successful, did not know who to go to in the event he had a problem at his bank, how was the man on the street to know? I decided a good start would be for the federal government to set up a national "411" system for consumers when they confront a problem with a financial institution. Anybody could call 411, get a person on the other end of the phone, describe their problem, and the financial institution involved, and get an answer as to which regulator had jurisdiction, and be forwarded to the appropriate person at the appropriate agency, much like the highly successful 311 system in NYC works. Not only does it allow people to quickly get to the agency with the power to do something to fix whatever the problem is, a record of the problem is made, added to the data base of other reported problems, and the solution is tracked. This results not only in a solution to the problem but also in data which is used as a tool to better manage the city.
Needless to say, the idea went nowhere, and I moved on to the private sector.
I thought of this idea again as I was reading the excellent book The Road From Ruin by Matthew Bishop and Michael Green. In the first half of the book, Bishop and Green very clearly outline the history of ruin -- of economic collapses through the centuries and their causes. The second half of the book is the roadmap back from the most recent financial crisis -- what we need to do to prevent future melt-downs, what we as a society need to change.
I thought again about the 411 system. One of the real problems we face has to do with consumer protection. There has been a lot of discussion about consumer protection as people are thinking about how the financial markets should be regulated. No matter what form that agency might take -- whether consumer protection is left as is, within each regulatory agency, or as a standalone agency, or housed within another agency -- data, information about what is happening to the users of the system, is crucial. A 411 system, properly constructed, could be a very powerful tool to determine what is happening where in the system.
Imagine if you, as a consumer, take out a mortgage. You get to the closing, you think something is not right, that the fees are too high, or you are being required to pay for something you do not think is right. You call 411, explain the problem and who the lender is. You are referred to the appropriate agency. A record of the complaint is entered into the system, and how it is resolved is tracked. The regulators get a periodical report of all complaints, their origin, type, financial institution, etc. If there is a spike in a certain area, or of a certain type of problem, or against a particular institution, they can investigate to find out what is going on.
As Bishop and Green say in their book, information is a powerful tool. It is hard to solve a problem if you do not know it exists in the first place.