As we await the final passage of the Dodd Frank financial reform bill, I remain convinced that the bill creates a necessary but not sufficient basis for meaningful reform. This is because at many turns, the bill opts for discretion rather than dictates. As my colleague Justin King and Travis Plunkett of the Consumer Federation of America discuss here, regulatory authority is consolidated and expanded but specific actions are left undefined. This means there is potential and promise but few guarantees.
The new set of regulators running both the Financial Stability Oversight Council and the Consumer Financial Protection Bureau will have to act aggressively in policing Wall Street and Main Street. As I have said before
, effective oversight requires a blend of empowerment, competence, and vigilance. Oversight agencies have to resist the formation of cozy relationships with industry. Historically, avoiding the dangerous phenomenon of regulatory capture is achieved through strong political will and leadership.
But the hoopla around the nomination process -- frequently cited as a failure of our democracy -- does ensure that the president and Congress take judicial appointments and their political consequences seriously. Regulatory appointees deserve the same scrutiny and public attention -- as much as the Court matters, regulators play a more immediate role in our economy.
The current stakes couldn't be higher: Congress is about to pass the Dodd-Frank bill, financial-reform legislation that grants regulators the power to break up banks, restrict derivatives, limit risk, and even liquidate failing banks. Ensuring that regulators will use those powers, especially in the face of regulatory capture and deep industry influence, begins with vetting the leaders of the regulatory agencies.
I agree. Yet it’s also worth noting that leadership qualities can be difficult to ascertain before conflicts emerge. Some leaders rise unexpectedly from the trenches. They use their knowledge, gained over time, of policy matters and the political process to exert authority. But it is useful to have a gameplan, and this is where the vetting process comes in. Getting prospective regulators to outline their goals, objectives, and potential strategies is a good idea because it gets the reform process moving.
I would especially like the inaugural nominee to head up the new Consumer Financial Protection Bureau to outline their strategy for rolling out this potentially impactful entity. I’ve seen a number of names floated to lead this effort already. If the Administration decides to pass on giving the post to Elizabeth Warren
, I might like them tap Treasury official Michael Barr
. But since I know there are great people scattered all over the country doing great work in this area, there is a good chance they will name someone I have never heard of. This will only raise the importance of getting the nominee on the record to identify a plan of action for this very consequential work. Sometimes a spotlight can help set the stage for the rest of the show.