The hour is upon American banking regulators. They’ve been handed 2,000-plus pages of new law in the Dodd-Frank Wall Street Reform and Consumer Protection Act that must be transformed into workable rules and procedures, and then implemented to fulfill the legislation’s promise to make the financial system safer. But there’s a problem: Many of the watchdogs charged with the task face leadership vacuums. This could spell trouble.
Without strong chieftains to fight their corners, special interests may gain the edge in the all-important rule-writing taking place. The risk is that certain provisions are watered down in practice, or that one segment of the industry benefits at the expense of another. Without directors given clear power by the president, and ideally the stamp of congressional approval, it’s easier for these regulatory agencies to be captured.
Consider the vacancies. The Federal Deposit Insurance Corp, which safeguards America’s $7-plus trillion in deposits, will see the term of Chairman Sheila Bair end in June. At the Office of the Comptroller of the Currency, which oversees 1,500 commercial banks, including those holding most of the industry’s assets, John Walsh has had the word acting in his title since August.
The Federal Housing Finance Agency, which oversees Fannie Mae , Freddie Mac and the Federal Home Loan Banks, is led by an acting head. And there is no director at the Office of Financial Research, which is supposed to support the Financial Stability Oversight Council, the über-agency consisting of all the regulatory chiefs, in identifying risks to financial stability and responding to emerging threats. Finally, there’s the newly-created Consumer Financial Protection Bureau, which also has no official chief.
These posts remain without settled leaders largely because the White House hasn’t pushed forward nominees. But it’s equally true that Republicans have made clear they’d block, for example, Harvard professor Elizabeth Warren’s accession to the consumer bureau, whose formation she has been championing.
The Obama administration may be unwilling to risk political capital on appointments to acronymic bodies voters probably don’t recognize or care much about. After all, the panic has passed and with it some of the urgency to implement reform. But financial history repeats itself. Leaving most of the banking regulatory complex so undermanaged at such a crucial time will only increase the probability it happens sooner rather than later.