US Is Still Facing Hurdles In Regulating Financial Giants

For all the federal government’s intervention into the world of business and markets, there’s one thing it still can’t do to stop the bleeding in the financial system—even though a lot of experts would like it to.

Under current law, no regulator has the authority to essentially take over a troubled bank holding company—conglomerates with a wide range of financial operations—the way the government routinely does with smaller, commercial banks.

Both FDIC Chairman Sheila Bair and Fed Chairman Ben Bernanke have made that crystal clear in recent days that even as the government injects more taxpayer capital into giant financial institutions such as Citigroup [C 1.22 0.02 (+1.67%) ] it can't actually shut them down even if officials saw fit and wanted to.

"You simply need a way of calling 'time out,' ” says former Treasury official Robert Glauber, who served during the savings and loan crisis. “They lack that and they know it. I believe you do need this.”

The regulatory framework shared by several different regulators is complicated. But experts and some in Congress even say the loophole of sorts may help explain the incremental approach of both the Bush and Obama administrations in dealing with the financial crisis, regardless of their ideological positions on nationalization.