Uncapturing the Regulators

There’s been a lot of talk in Washington lately about regulatory “reform.” Some of that talk is beginning to focus on what Senator Elizabeth Warren (D-Mass.) has identified as the key problem: a playing field badly tilted in favor of big banks and other corporate players.

A number of advocacy groups have joined forces to mount a campaign called Presidential Appointments Matter. “Who a President nominates to senior financial policy and financial regulatory posts – Treasury Secretary, Attorney General, leaders of financial oversight agencies – makes all the difference in what policies we end up with, and whether our economy works for most people,” says Lisa Donner, executive director of Americans for Financial Reform. “Our next President should make demonstrated willingness to stand up to Wall Street power in order to protect the public interest a bottom line criteria for these positions.”

Efforts are also underway to address the conflicts of interest that can make government agencies reluctant to challenge deceptive or unethical industry practices. Senators Tammy Baldwin (D-Wis.) and Rep. Elijah Cummings (D-Md.) have introduced the Financial Services Conflict of Interest Act, which would ban so-called “golden parachute” payments to bank alumni who accept government jobs, in addition to taking other steps to slow the revolving door between Wall Street and Washington. The Federal Reserve Independence Act, backed by Senators Bernie Sanders (I-Vt.) Barbara Boxer (D-Calif.) and Mark Begich (D-Alaska), would prohibit bank executives from serving as directors of the 12 Federal Reserve banks.

Such measures are needed to counter Wall Street’s ability to spend massive amounts of money on litigation, lobbying, and the forging of political connections. The financial industry uses those connections both to shape individual rules and, over time, to sap the will of regulators to act forcefully. “I talk with agency heads who are like beaten dogs — just trying to keep their heads down,” Senator Warren said in her speech to a Capitol Hill symposium on the phenomenon of regulatory capture. As a result, she added, “the rulemaking process often becomes the place where strong, clear laws go to die.”

While some lawmakers are looking for ways to bolster the independence and effectiveness of financial regulators, others – a worrisome number – are pushing a very different brand of regulatory reform: one intended to make it easier for large financial companies to bend the rules to their liking.

In January, AFR and People’s Action organized an online petition urging Senators to reject a bill to curb the political independence of the Consumer Financial Protection Bureau and other oversight agencies. In a joint letter earlier this week, AFR and eight partner organizations voiced their opposition to the so-called TAILOR (Taking Account of Institutions with Low Operation Risk) Act, the latest in a succession of proposals to hamstring regulators by requiring them to perform burdensome and redundant “cost benefit” studies of the impact of (in this case) past as well as future rules.

Regulators need to listen to all sides, but, as Senator Warren went on to say, “bludgeoning agencies into submission undercuts the public interest. The goal should be to have a system where influence over new rules is measured not by the size of the bankroll, but by the strength of the argument.”

The complete text of her speech, in which she laid out four key principles of reform, can be found here.

— Jim Lardner

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