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Wall Street Supercop

Posted by Larry Doyle on July 24, 2009 9:55 AM |

Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!

Pardon my lighthearted manner to a truly serious issue, but certain topics just lend themselves to breaking out my Irish wit and this is one of them.

Recall that under President Obama’s initial plans to revamp the financial regulatory structure, the Federal Reserve was to be designated as the uber-regulator or Supercop for Wall Street. Well, the best laid plans do not necessarily play out that way, as the Associated Press reports SEC, FDIC Heads Want New Council to Be Supercop:

Key regulators on Thursday broke with the Obama administration, reaffirming their belief that some new powers to monitor big institutions against financial threats should go to an interagency council, not the Federal Reserve.

Some Republican lawmakers also continued to warn against endowing the Fed with new powers in an overhauled system as Congress slogs through a complex deliberation that could reshape the financial landscape in the wake of a historic crisis.

Under the administration’s financial overhaul proposal, the central bank as “systemic risk regulator” would be able to duplicate and even overrule other regulators.

But Securities and Exchange Commission Chairman Mary Schapiro and Sheila Bair, head of the Federal Deposit Insurance Corp., stressed to the Senate Banking Committee that crucial role should be played by the new stability oversight council. The body would include the Treasury Department, the Fed, and the two independent agencies headed by Bair and Schapiro.

I am not necessarily for more government bureaucracy and I hope this supercop council is not merely a layer of red tape. I would be very concerned if the Federal Reserve were designated as the sole supercop. Why? I think it would likely hinder the Fed’s ability to be viewed as totally independent. I already believe the Fed has a credibility issue on that front. Being designated as Wall Street’s supercop would only further jeopardize the Fed’s claim of  independence.

Make no mistake about it, though, the efficacy of a proposed supercop is ultimately a question of transparency and integrity. I addressed these points in writing “Future Financial Regulation: Not A Question of Sufficiency, But of Transparency and Integrity.”

I am heartened by the fact that the FDIC under Sheila Bair would be able to play a prominent role in this supercop council. I hold Ms. Bair in high regard. As the AP reports:

Bair testified that an interagency council with strong and extensive authorities “will provide for an appropriate system of checks and balances.” A council “with real teeth … would be highly effective,” Bair said. It would be “tremendous” power to invest in a sole regulator, she said.

Bair also endorsed the proposed creation under the Obama plan of a consumer finance protection agency to oversee areas such as mortgages and credit cards — an idea fiercely opposed by the financial industry.

How will this play out? Sense on Cents will be monitoring developments. Regulating Wall Street is not a job for mere mortals. This is a job for Supercop!!

LD

Related Commentary

Don’t Call the Fed Independent; June 17, 2009

  • fiscalliberal

    Last night I listened to the replay of that Senate Banking Hearing. The guy from the Fed was giving the line that it should be in the Fed.

    Most devistating was the introductory remarks of Dodd and Shelby. Especially Shelby listing how the Fed had failed in the last crisis. He listed about 5 area’s all very relevant to the crisis. Later, Dodd asked the question of the Fed representative, since you failed so bad, why should we trust you now. The Fed guy countered that SEC and the other regulaters misseed it. He seemed to think that was an acceptable answer. incredible.

    Later Senator Corker asked the question, if some thing went bad, what would the Super Cop do – The Fed guy started dancing around regarding committee’s etc. Corcker listened and at the end and turned to Dodd and said ” Mr Chairman, this is what we have to deal with regarding a non answer”.

    I am moving to the view that we should have the system proposed by Bair and Schapiro and reduce the Feds budget as they are no longer doing their job. Let them focus only on monetary policy. That would follow the new PAYGO discipline the House just passed.

  • Jonathan

    I think we should be wary of characterizing the SEC, FDIC etc., based on two particularly able, fair and charismatic leaders, who have struck blows against perceived Washington/Banking insiders.

    If Geithner had succeeded in removing Bair at the FDIC, might we have yet another Goldman alumnus running the FDIC, and pandering to Wall St? If so, would placing power in the FDIC seem like such a great idea?

    Don’t take this to mean I am an apologist for the Fed, in fact I fully support auditing the Fed, if not disbanding it, based on past performance, although I concede perhaps Bernanke has steered a reasonable course since September 2008.

    Just some thoughts.






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