Banks Avoided Federal Action by Switching to State Oversight
Banks seeking to avoid complying with federal regulatory actions often have an easy solution—they can switch to state supervision.
At least 30 banks facing regulatory action since 2000 have opted for that solution, according to a Washington Post investigation. As a result, they avoid compliance with ordered changes to improve their balance sheets and reduce the risks of failures.
Sources told the newspaper that its count of banks switching to evade regulations could be on the low side. About 240 banks have switched from federal to state charters in the same time period, and some may have done so in anticipation of federal action or while subjected to less serious regulatory action that is confidential.
Critics say bank oversight cannot be strengthened without reforms that bar banks overseen by the Comptroller of the Currency from switching to state charters. Other critics say regulators are often too lenient because their agencies are funded by the banks they oversee.
A former comptroller of the currency, Eugene Ludwig, told the Post that reform is needed. “The whole framework of our system was set up at a different time in American history, and it’s really much more a matter of history than logic,” he said.
