Though House and Senate lawmakers still have plenty of issues to work out in the final regulatory reform bill, one thing is already clear: The legislation will do little to streamline the fractured financial regulatory framework.

In the aftermath of the financial crisis, many observers said reform was the best opportunity in decades to rework the supervisory structure, which includes four banking regulators and 50 states with overlapping authorities.

But in the end, the final bill is likely to get rid of only one agency — the Office of Thrift Supervision (OTS) — and leave most of the rest of the existing system intact.

"It's a huge missed opportunity to restructure our regulatory system in a manner that makes sense," said Kevin Jacques, the Boynton D. Murch Chair in Finance at Baldwin-Wallace College  and a former Treasury official. "Politically, I completely understand why the administration did what it did, but economically, this is a terrible crisis to have wasted."

Every president in recent memory has tried to revamp the regulatory structure, with many — including proposals from Presidents George H.W. Bush, Bill Clinton and George W. Bush — recommending some form of consolidation.

The Obama administration initially appeared ready to do the same, considering combining the banking regulators into one agency and merging the Securities and Exchange Commission (SEC) with the Commodity Futures Trading Commission. But by the time it released its white paper last June, the administration had dropped those plans, instead suggesting a merger of OTS  into the Office of the Comptroller  of the Currency.

Michael Barr, the Treasury assistant secretary for financial institutions, said that the administration ultimately had other priorities it wanted to address.

"When we were going through the process with the White House, with the [National Economic Council], to think through what the key issues were, we looked at a range of proposals, including regulatory consolidation," he said in an interview Friday. "Our basic view was we'd spend enormous amounts of political energy and tremendous time with Congress and others on something that wasn't core to reform."

Though House Financial Services Comittee Chairman Barney Frank appeared content with that approach, Senate Banking Committee Chairman Chris Dodd initially had a much more ambitious plan. He talked repeatedly in hearings about the "alphabet soup" of regulators, suggesting that it was partly to blame for the financial crisis.

In his initial bill, introduced last fall, Dodd proposed combining the banking regulators into one agency. By this spring, he had amended it to eliminate only the OTS but also to strip the Federal Reserve Board of most of its oversight of banking companies. By the time the bill passed last week, however, the Fed's supervisory power had been restored.

Even a Senate provision to eliminate the thrift charter is likely to be struck from the final bill during negotiations with the House.

"We changed virtually nothing in terms of the regulatory structure," said Bill Isaac, chairman of LECG Global Financial Services  and a former chairman of the Federal Deposit Insurance Corp. (FDIC) "We got rid of the OTS, but that's something everyone assumed would happen."

Isaac supported Dodd's original consolidation idea but conceded that such a move would have required a huge political battle. Indeed, the Federal Reserve Bank  presidents and a phalanx of community banks protested the proposed reduction in the Fed's power, helping Sen. Kay Bailey Hutchison , R-Texas, to win passage, 90 to 9, of an amendment to keep the central bank's authority intact. "It's hard for the government to really eliminate agencies," said Alex Pollock, a resident fellow at the American Enterprise Institute. "A very interesting element of this is the Federal Reserve, which started off in Dodd's original bill as having its authority restricted, and now it's a major winner. There is a lot going on, but it isn't consolidation and streamlining."

Ultimately, with the exception of the OTS, the regulatory agencies are almost certain to gain power. Under both bills, the Fed would be the systemic risk regulator, and the FDIC gained resolution authority over systemically important bank holding companies. The OCC, meanwhile, will now supervise thrifts.

"This is not a consolidation bill," said Donald Ogilvie, the chairman of the Deloitte Center for Banking Solutions. "It was an expansion of regulatory authority."

Although eliminating the OTS is significant, its demise had been all but assured for some time. Within a few months of its creation in 1989, American Banker ran an article speculating how long the agency would last. With a steady decline in the number of thrifts and failures and charter conversions at most of the largest savings and loans, few fought to save the agency. "It's clear they failed, but also they've ceased to have critical mass to be effective," said William Longbrake, an executive in residence at the University of Maryland and a former vice chairman at Washington Mutual Inc. Another "reason they don't need to exist is, the difference between the charters is pretty minimal."

By contrast, every other agency had a constituency ready to fight for it. Community bankers complained to Congress at the very suggestion that the FDIC — the regulator of most small institutions — would lose its oversight role, and they defended the Fed as well. "Everyone is very comfortable with the status quo, … and the lobbying was very, very significant,"Longbrake said.

Still, others said the administration should have at least tried for more consolidation.

"The financial reform agenda as framed by Treasury last year, and as likely to continue in conference, reflects monumental lost opportunity," said Rick Carnell, an associate professor at Fordham University School of Law and a former Clinton Treasury official. "There was a huge opportunity here for real reform, and it was squandered. I think it was fair to say it was co-opted."

But Barr defended the administration's strategy. "The key thing is, the rules of the game are fixed," he said. "Would it have been neater or tidier? There are certainly neater and tidier ways of setting up the structure, but that doesn't necessarily mean it will be better."

Brian Gardner, a political analyst at Keefe, Bruyette & Woods Inc., said the administration made the right political judgment. "You wind up having to spend political capital on things less important than other issues," he said. "At the end of the day, how many regulators there are is less important than what the powers are."

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