By Switching Their Charters, Banks Skirt Supervision

By Binyamin Appelbaum
Washington Post Staff Writer
Thursday, January 22, 2009

At least 30 banks since 2000 have escaped federal regulatory action by walking away from their federal regulators and moving under state supervision, taking advantage of a long-standing system that allows banks to choose between federal and state oversight, according to a Washington Post review of government records.

The moves, known as charter conversions, highlight the tremendous leverage that banks hold in their relationships with government supervisors.

The financial crisis has pushed regulatory reform high up the agenda of the Obama administration and congressional leaders. Timothy F. Geithner, the Treasury secretary nominee, sounded the theme at his confirmation hearing yesterday, calling for a "stronger, more resilient system."

Some regulatory experts say that eliminating the opportunity to switch regulators is critical to strengthening oversight.

The number of public enforcement actions nearly tripled last year as federal regulators struggled to contain the spreading financial crisis. The actions typically require banks to make major changes that improve their financial health and reduce the risk of failure. But because regulators cannot prevent charter conversions, banks also have the option of changing their regulator.

(More here.)