I wrote recently that the market for securitized debt, and its ancillary product, credit default swaps, the so-called insurance for the securitized debt, which are collectively the main instruments traded in the “derivative market,” has recovered and is back in business. I called for more rapid implementation of new regulations on this formerly unregulated financial business that led to the “Great Recession.”

The Obama team has developed some new controls that are being debated. A significant one is a “super” supervisor for federally chartered banks. Many urge that this “bank tsar” oversee all banks, including state chartered banks. It makes sense since all banks participated in the “derivatives” market. However, a major player has come out against extending the supervisor’s rule to all banks.

Sheila Bair, the head of FDIC (Federal Depositers Insurance Corp.), that insures your bank deposits against loss due to bank failures, does not want someone else to supervise the state chartered banks she now controls through FDIC rules. She believes that “community based banks” should continue to be regulated by her organization, rather than by a new “bank tsar.”

Well the concern is the nature of the transactions, not the nature of the buyers. The “bank tsar” is aimed at controlling investment in “derivatives” rather than controlling the nature of the buyer himself, e.g. a federal or state chartered bank. It would be a shame to see a “bureaucratic turf war” stymie the work to build better regulation of the “derivative” market.