January 12, 2009


The Windy recently published a fascinating piece on the embattled Office of Thrift Supervision, which ostensibly regulates savings and loan banks but in recent years has been more notable for failing to identify problems in such companies as Washington Mutual, IndyMac, and Countrywide as they each went down in flames. It seems that OTS, which many in Washington would like to see abolished, has been gaining support from insurance companies eager to purchase failing thrifts in order to qualify for some of that $700 billion in bailout money.

What's interesting about this, for me, is comparing OTS to another banking regulator that's been making headlines recently, the Federal Deposit Insurance Corporation. There are obviously many differences in what both agencies do, but one major difference is who they identify as their primary constituency: Whereas the FDIC, as the name implies, sees itself as protecting the interests of individual depositors, OTS is notorious for having "overly close identification with its banks," as the Washington Post put it in their investigation of the agency.

This question of constituency -- to whom a government office feels itself most beholden -- is a really important one and really underappreciated. Ezra Klein, for example, frequently draws attention to the fact that the Department of Agriculture sees itself as representing the interests of food producers -- i.e., farm states and agribusiness -- rather than food consumers -- i.e., everybody else. It's no surprise, then, that the USDA is more supportive of policies that subsidize food producers rather than ensuring that Americans are getting an nutritionally adequate diet.

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