Shreds and Patches

US regulation: President Barack Obama wants to remake US financial regulation. The details of his overhaul emerging on Wednesday suggest a genuine effort to plug the worst holes. But much of it is a patchwork of rugged tape, filler and dabs of paint. The oversight system will look better and could work better. But the best chance in decades of a full rebuild has gone begging.

That may to some extent be a political calculation. Obama and Tim Geithner, his Treasury secretary, have a better chance of getting the bigger changes through Congress if they avoid sweeping away the existing crowd of regulators and the influence of the various groups of lawmakers to which today’s watchdogs are beholden.

But the flipside is that while US financial supervision overall may end up looking better suited to today’s interconnected financial markets, the structural underpinnings will still be creaky. Giving the Federal Reserve an over-arching power to watch out for systemic risk across the financial sector makes good sense. By contrast, failing to expend the political capital needed to merge the Securities and Exchange Commission and the Commodity Futures Trading Commission into one regulator of exchanges looks more like postponing a problem.

The Fed’s new role is one of the big ideas. Another is the creation of a special tier of too-big-to-fail institutions which will be regulated more tightly than others. The ability to unwind big non-bank firms like American International Group in the way authorities can only now do with banks is another logical element of the plan. Among other things, there’s also a sensibly incremental approach to official scrutiny of hedge funds, and a call for tougher regulation of credit rating firms is appropriately accompanied by a plea that lawmakers and regulators try to reduce their reliance on ratings anyway.

Yet it seems only one regulator will disappear: the Office of Thrift Supervision will be absorbed into a beefed up version of the Office of the Comptroller of the Currency, renamed the National Bank Supervisor. Elsewhere, the population of regulator Pooh-Bahs is only set to increase. There will be a new Financial Services Oversight Council; a new Consumer Financial Protection Agency; and a new national insurance overseer.

It’s how the enlarged team works together that matters, of course. But the aftermath of the recent crisis must have offered the best chance in many years to revamp the structure of the regulatory system to fit its new functions - and perhaps execute them more effectively.