'Choose-a-Charter' System Lets Banks Dodge Regulation

By Jim O'Neill,  Newser User
Posted Jan 22, 2009 9:25 AM CST
Treasury Secretary-designate Timothy Geithner says he wants a "stronger, more resilient system" of banking regulation.   (AP Photo/Charles Dharapak, File)
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(Newser) – A loophole in the nation’s banking regulations allows institutions to switch their charters from federal to state, effectively allowing them to decide which regulatory agencies supervise them, reports the Washington Post. Regulatory reform is at the top of Treasury Secretary-designate Tim Geithner's agenda. Of the 200-plus banks that have converted their charters since 2000, more than two dozen were in hot water with federal regulators at the time.

Some switch to save money—state fees are lower—and some convert from state to federal chartering, often because they're expanding. Texas is a haven for federal-to-state conversions, but the banking commissioner defended his state's safeguards: "If there's an historic problem, it has to be something that's being addressed," he said. "No chartering agency wants to bring on a problem."