There's a decent case to be made that instruments like CDS's essentially became instruments of regulatory arbitrage--a way to get around prudential regulations on things like issuing insurance. The bank holding companies became a way to amalgamate risk in an entity that was not directly regulated by anyone; each piece had its own regulatory agency that was not responsible for the whole.
Still, I have niggling doubts. Our financial regulation system is hopelessly fragmented, to be sure. On the other hand, other countries, with clean central systems, have banks that are in even worse shape than ours. Centralizing regulation eliminates overlap at the cost of the one regulator you have getting the whole system badly wrong.
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