PARIS ― In the early phases of the financial crisis , it was fashionable to argue that the United States ’ system of regulation needed a fundamental structural overhaul . Differences of opinion between the Securities and Exchange Commission ( SEC ) and the Commodity Futures Trading Commission ( CFTC ) had obstructed effective oversight of investment banks and derivatives trading ( only the U . S . believes that it makes sense to regulate securities and derivatives separately ) . Indeed , the plethora of separate banking regulators had created opportunities for banks to arbitrage the system in search of a more indulgent approach to capital . Likewise , the lack of a federal insurance regulator had left AIG regulated by the Office of Thrift Supervision ( OTS ) and the New York State Insurance Department , which proved to be a wholly inadequate arrangement . Little has come of these arguments . The Dodd - Frank Act did succeed in putting the OTS out of its misery , but jealous congressional oversight committees have prevented a merger of the SEC and CFTC , and nothing has been done to rationalize banking supervision . So the American system looks remarkably similar to the one that turned a collective blind eye to the rise of fatal tensions in the early 2000 s . One factor that contributed to institutional stasis was the absence of a persuasive alternative . In the decade or so leading up to the meltdown of 2007 - 2008 , the global trend was toward regulatory integration . Almost 40 countries had introduced single regulators , merging all types of oversight into a single all - powerful entity . The movement began in Scandinavia in the early 1990 s , but the most dramatic change came in 1997 , when the United Kingdom introduced its Financial Services Authority ( I was its first chairman ) . Other countries adopted slightly different models . A fashionable approach was known as “ twin peaks , ” whereby one regulator handled prudential regulation ― setting capital requirements ― while another oversaw adherence to business rules . But twin peaks itself was further subdivided . The Dutch model brigaded the prudential regulators inside the central bank , while the Australian version was built on a separate institution . These integrated structures seemed to offer many advantages . There were economies of scale and scope , and financial firms typically like the idea of a one - stop ( or , at worst , a two - stop ) shop . A single regulator might also be expected to develop a more coherent view of trends in the financial sector as a whole . Unfortunately , these benefits did not materialize , or at least not everywhere . It is hard to argue that the British system performed any more effectively than the American , so the single - regulator movement has suffered reputational damage . And the continuing travails of the Dutch banking system ― another bank was nationalized last month ― suggest that it is easy to fall into the gap between twin peaks . The truth is that it is hard to identify any correlation between regulatory structure and success in heading off or responding to the financial crisis . Among the single - regulator countries , Singapore and the Scandinavians were successful in dodging most of the fatal bullets , while the U . K . evidently was not . Among the twin peak exponents , the Dutch system performed very poorly indeed , while Australian financial regulation may be considered a success . Does it matter whether the central bank is directly involved ? Many central bankers maintain that the central bank is uniquely placed to deal with systemic risks , and that it is essential to carry out monetary and financial policies in the same institution . Again , it is hard to find strong empirical support for that argument . The Dutch and American central banks , with direct oversight of their banking systems , were no more effective in identifying potentially dangerous systemic issues than were non - central bank regulators elsewhere . Canada is often cited as a country that steered its banks away from trouble , even though they sit uncomfortably close to U . S . markets . But the Bank of Canada is not now , and has never been , a hands - on institutional supervisor . So perhaps the U . S . Congress has been right to conclude that changing the structure of regulatory bodies is less important than getting the content of regulation right . Elsewhere , though , a lot of structural change is under way . In the U . K . , every financial disturbance leads to calls to revamp the system . There were major overhauls in 1986 , and again in 1997 , when the Bank of England lost its banking supervision responsibilities as a delayed response to the collapse of Barings . Next month , it gets them back ― and more . For the first time , the Bank of England will supervise insurance companies as well . A similar change has been introduced in France , where a new Prudential Control Authority has been created . The British and French rarely agree on anything ; one is tempted to say that when they do , they are highly likely to be wrong . It is difficult now to discern a coherent pattern . Certainly , the trend toward full - service single regulators outside the central bank has slowed to a crawl ( though Indonesia is consolidating regulators at present ) . There is no consensus on the role of the central bank : in around a third of countries , it is the dominant player , in another third it has responsibilities for banks only , while in the remaining third it is a system overseer only . We could see this as a controlled experiment to try to identify a preferred model . After all , financial systems are not so different from one another , particularly in OECD countries . But there is no sign of a considered assessment being prepared , which might at least help countries to make better - informed choices , even if it did not conclude that one model was unambiguously best . The G 20 , under its current Russian presidency , is now in search of a role . Here is a useful practical task it might take on . By Howard Davies Howard Davies , former chairman of Britain ’ s Financial Services Authority , deputy governor of the Bank of England , and director of the London School of Economics , is a professor at Sciences Po in Paris . ― Ed . ( Project Syndicate ) [ Hot News ] ◆ Park takes helm ◆ Economic democratization overshadows inauguration ◆ Welfare , public safety focus of Park ’ s agenda ◆ Where have we seen it before ? ◆ British teen dies in fall from ski lift