The Securities and Exchange Commission released a statement on Tuesday saying that five federal agencies jointly developed Section 619 of the Dodd-Frank Wall Street Reform Act (commonly known as the “Volcker Rule” Khan Academy has a pretty good background of origins of basic securities regulation).
DealBook gives an interesting summary of each of the regulating agencies’ origins in their article, “The More Regulators the Merrier.”
Of the five agencies behind the Volcker Rule, the three bank regulators — the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation — were each created at different times for different purposes. The Office of the Comptroller of the Currency was a product of the Civil War. It was created to charter national banks, which could hold dollars issued by the federal government, and thereby help the government manage its war debts.
The Federal Reserve was meant to be a central bank. It was created in 1913, and was eventually given powers to regulate bank holding companies or corporate structures that owned banks.
The Federal Deposit Insurance Corporation was created in the Great Depression to provide assurance to retail customers that their bank deposits would be safe; because insurance companies do not like to insure risky ventures, they were given some supervisory powers over almost all banks – powers that increase as banks get into more trouble.
The trading components of the Volcker Rule are meant to be overseen by both the Commodity Futures and Trading Commission and the Securities and Exchange Commission. Industry analysts and economists have long scratched their heads over the need to have two capital markets regulators overseeing debt and equity securities in one place and futures and derivatives securities on the other, particularly considering that many futures and derivatives traded today reference debt and equity securities. The S.E.C. and C.F.T.C. are supervised by different congressional committees – finance services and agriculture..
The debate is whether having multiple regulators creates advantages or disadvantages. One professor at UCLA Law School fiercely argued that inter-agency competition promotes efficiency. Another professor at UCLA Law School fiercely argued that inter-agency competition promotes inefficiency, waste, and bandwagoning of charges (i.e., when one agency charges a company/individual with fraud, then suddenly all of the regulators charge that same company/individual with fraud as well). Then there is the lobbying by special interest groups to obtain special favors from the different regulators.