USA Today had a story Tuesday that pointed out how regulators were regularly absent as the banks they were supposed to be overseeing failed under mounting debt.
Bert Ely, a longtime banking consultant, has identified a data point that highlights how far behind the regulators have actually fallen.
During the savings and loans crisis and its aftermath, banks that failed had a loss ratio--or a bank's total losses divided by its total deposits--of just around 13%.
Since the current recession began, that same ratio for failed banks surged to more than 37%, or nearly triple S&L crisis levels.
This means that the regulator responsible for seizing failed banks, the FDIC, is waiting much longer before taking over these doomed banks, allowing their losses to mount.
As a bank's loss ratio increases, it becomes costlier for the bank, and they pass the additional expenses onto their customers. Therefore, the FDIC inaction has resulted in rising costs for regular Americans, Ely said.
"The big question is why is the FDIC moving so slowly? It is very evident from these numbers that there is serious ineptitude among the regulators," Ely said. "Their incompetency is costing the banking industry, but they are passing this cost on to depositors and borrows, so we end up suffering."
As for their part, the FDIC told the Huffington Post last week that the FDIC doesn't make the decision when to seize a bank. The agency said that it merely carries out the seizure, but other regulators are responsible for determining when a bank has failed. A patchwork of agencies currently make this decision.
Hopefully this type of confusion can be streamlined, spurring a quicker response time among regulators, when Obama reveals to Congress tomorrow his plan to overhaul regulatory oversight of Wall Street.