Apparently, Treasury Secretary Tim Geithner went to the Hill today to get beat up by Congress over the administration's just-sent legislation to improve financial regulation. At issue: the administration has proposed consolidating regulatory power over banks into one National Bank Supervisor office, while also handing the Federal Reserve more power to regulate non-bank institutions. There's also a proposal on the table for a Consumer Financial Protection Agency which would take over all rule-making duties from the motley financial crew that now holds them (there are at least six agencies that make banking rules right now).
Geithner had this shiny little optimistic opener in his statement:
We understand that on any issue this complex and this important there will be areas where parties genuinely disagree, and we look forward to refining our recommendations through the legislative process.
But there should be no disagreement on the need to act.
Next, Sheila Bair testified that it wasn't fair that the Fed was getting more powers and the FDIC wasn't. John Dug, the Comptroller of the Currency, then got to testify about how crappy it is that some of his power is going away; John Bowman, who directs the Office of Thrift Supervision, was also pretty upset that his entire department is being eliminated.
In short, there's a big old turf war happening among the financial regulators, where everyone -- everyone -- is singing the same tune: more power for me, no more power for you.
Can't we all just get along?
No, probably not, and that's a good sign. If everyone was happy with this plan, it would be a bad plan. I can say that, because everyone was pretty content with the status quo last year -- and we've seen how that turned out. In fact, the justifications these other regulators offer for why they should get more power are somewhat laughable.
In his testimony, Mr. Bernanke offered the Fed's assistance to and supervision of Goldman Sachs and Morgan Stanley as evidence that they can effectively regulate bank holding companies. Never mind that those companies volunteered to go under Fed protection in order to get the huge TALF and TARP hand-outs. Bernanke alsopointed to the SCAP (stress tests) as part of his justification for why the Fed should be given more power -- which I find a dubious claim to fame, since unemployment is likely to land over the tests' 10 percent "more adverse" scenario.
Ms. Bair testified that the administration's proposed "Financial Services Oversight Council" doesn't adequately account for regulating systemic risk. That's a fine complaint, but it doesn't actually seem to be what she has a problem with. Instead, Bair's main complaint seems to be that the FSOC reports to the Secretary of the Treasury instead of to an independent bank regulator -- someone like the head of the FDIC. She testified that the FDIC would support the formation of a Council with a board structure nearly identical to that of the FDIC. In fact, it sounds a bit like Ms. Bair wouldn't mind moving up to head such a council herself -- perhaps the fun of closing five new banks this week isn't as glamorous as it seems.
Dugan's testimony was predictable: the OCC supports everything except for the proposed "consolidation of all financial consumer protection rulewriting, examination, and enforcement in one agency – which would completely and inappropriately divorce all these functions from the comparable safety and soundness functions at the federal banking agencies." Replace "federal banking agencies" with "Office of the Comptroller of the Currency" or the more colloquial "my turf," and you get the gist of his complaint. And Acting OTS Director John Bowman, whose testimony [.pdf] is actually the clearest of anyone's and comes highly recommended, basically said this is all a good idea, except OTS does important stuff, too, so slow on down and reconsider sacking us all.
So confusing was the flood of criticism that decisions on the proposed legislation have been moved to at least September, meaning that the exact folks who all testified that changes are needed, and soon, have succeeded in making sure that none of these changes happen soon.
If only, if only, if only these poor confused congresspeople had read Elizabeth Warren's stirring defense of the Consumer Financial Product Agency on Baseline Scenario -- but I know, it's a lot of work, having to like go to the Internet and find sources and stuff. Better to just throw up your hands and say, I dunno what to do! Or, if you're Senator Chris Dodd, better to say "but the banking lobby doesn't like this at all!" and stall like your political life depends on it (hint: it does).
Good work, financial regulators and congressional overseers! Keep piling on with your complaints and greedy turf protection. It would be terrible to see any government appointees actually giving ground for the good of the country, particularly when it's so much more fun to kick the administration. Just in time for recess!