An Exploration of Effectiveness in the Regulation of Federal Depository Institutions, 1989–2008

Striving for Balance

Financial services regulators are tasked with balancing the conflicting roles of empowering and policing their regulated communities. In order to be effective, agencies must be able to accomplish both tasks. This analysis examines several determinants of effectiveness among U.S. bank regulators. Using statistical and narrative analyses, it examines factors that have contributed to the regulatory effectiveness of the National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision. The study focused on the relationships between regulatory ability to prevent failures and influences including agency longevity, ability to manage complexity, appointee and staff qualities, mission stability, regulatory style, and resources. Agency longevity and resources had the greatest impact on effectiveness among the cases that were examined. Additionally, this study proposes a typology that suggests that more effective regulators are able to balance information from their regulated communities with a public interest orientation. This allows them to have current information regarding emerging regulatory issues but also to avoid becoming too reliant on their supervised institutions for information. By not being overly reliant or out of touch with their regulated communities, agency can better foster regulatory resiliency.

It introduces the theoretical framework, followed by an in-depth discussion of
regulatory effectiveness as this analysis addressed it. Next, the chapter turns to
the working model for regulatory effectiveness drawn from the scholarly literature,
followed by a discussion of the claims that the study examines. The great
challenge in cobbling together a theory of regulatory effectiveness is that often
effectiveness rests in the eye of the beholder. Citizens, decision makers, and
interest groups ...