There has been a multi-stage reaction from Wall Street to the prospect of financial regulation, ever since the crash necessitated the need for the political class to act like they were doing something to rein in the financial sector. First the banks tried to water down the legislation which eventually became Dodd-Frank. Then they used all of their power to delay implementation, add loopholes, or completely change the spirit of the law when the regulators wrote the rules.
We’re now at stage three. This involves defanging the regulators even more than they are currently, by subjecting them to more executive branch oversight. And the legislation is quickly moving through Congress.
Lawmakers are pushing a bill that could curb the influence of the Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators, according to Congressional staff members and government watchdog groups.
The measure, which a Senate committee is planning to debate this month, aims to empower the president in the rule-writing process. The proposal would allow the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry [...]
“Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation,” said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group.
This is a bipartisan bill from some of the most notorious members of the Senate – Republicans Susan Collins and Rob Portman, along with Wall Street Democrat Mark Warner. Because it’s a restructuring bill, it’s going through Joe Lieberman’s Homeland Security Committee (where Collins is the ranking member and a close collaborator) rather than the more natural venue of the Banking Committee.
But clearly, this bill would increase the power of Wall Street. Federal agencies like the FDIC, SEC and CFTC would have mandatory oversight from the White House over the rulemaking process. This would allow Presidents lots of power to rewrite and negate financial regulations. Right now, the President chooses senior staff for these agencies, who then serve at the pleasure of the President. Those agency heads serve overlapping terms and have a modicum of independence. Under this standard, the President would have what amounts to pre-emptive powers over their rule-making; he or she wouldn’t have to wait to install cronies. In addition, all rules with an annual effect on the economy of $100 million would get re-routed to OIRA, the agency inside the Office of Management and Budget which reviews regulations for a variety of federal agencies today, and usually in favor of corporate interests over the public. Cass Sunstein, the outgoing head of OIRA, is notorious for distributing industry attacks on regulations to folks inside the White House.
The bill’s supporters say this will merely force these agencies to account for the costs of their rules (the opposition denies this, saying that agencies like the SEC do cost-benefit analyses all the time). And they have backing from the President’s Jobs Council, which made a recommendation along these lines this year. The Jobs Council, you remember, also recommended the proposal that would become the Jumpstart Our Business Startups (JOBS) Act, which eliminates many transparency rules that protect investors from stock scams.
More than anything, this centralizes the approach for lobbyists when they need to kill some regulation that might cost their business money. They don’t have to maintain relationships at any of the alphabet soup agencies which regulate them. They just have to lobby the White House. In addition, throwing this process in while these agencies are enacting Dodd-Frank reforms will surely cause additional delays. Financial firms will use whatever reports the White House generates in their reviews of the regulations as evidence in court to throw out the rules. Obviously some Presidents would be more stringent on cracking down on the regulatory agencies than others, but you basically don’t get elected President, at this point, without substantial backing from Wall Street. So giving the executive branch oversight is a prelude to killing any meaningful rules.
More from Travis Waldron.