Patricia Robinson, assistant general counsel of the Board of Governors of the Federal Reserve System, stated on April 17 that the Federal Reserve is seeking changes to current law to allow it supervision over broker-dealers that are part of bank holding companies. Robinson said that "[t]he general position [of the Federal Reserve] is that you cannot wall off supervisors, that you do have to have an overall look, and that's why [the Federal Reserve] is seeking some enhancements in the legislation... ." She added that the financial regulatory system should focus on what firms actually do and "if organizations are functioning essentially the same way, they should not be regulated differently."
Under current law, the Gramm-Leach-Bliley Act of 1999 establishes the Federal Reserve as the regulator of bank holding companies but also leaves regulation of broker-dealers, including those within bank holding companies, to the SEC. The proposed transition to a new regulatory scheme results from the concerns that federal deposit insurance has been used to subsidize unsafe investments by entities engaged in unregulated business practices.
Reaction from many lawyers was that these remarks could signal a move toward a bank regulatory model for the US financial services system. Some felt that the current split in regulatory authority did not make sense since broker-dealers engage in many similar activities as banks.
Story: Fed Will Seek Supervisory Role Over Broker-Dealers, Official Says, 41 Sec. Reg. & L. Rep. 748 (April 27, 2009)