Most people I know are not enthusiastic about the Dodd/Corker compromise plan to house a Consumer Financial Protection Agency inside the Fed, but here’s a contrary view:
The Fed, on the other hand, does regulate non-banks (through its consolidated supervision of bank holding companies). It’s also self-funding, and is the regulator most insulated from political interference, due to the 14-year terms of Fed governors, among other things. So if we set up a CFPA inside the Fed, we will have achieved the goal of having a self-funded regulatory body that’s relatively free from political interference. Now, I know what you’re going to say: “The Fed is institutionally biased in favor of the banking industry, and anyway, Alan Greenspan never would have allowed a strong consumer regulator inside the Fed!” And that’s true. But now we just have to insulate the Fed-housed CFPA, in its rulemaking and enforcement activities, from the Board of Governors. That can certainly be done, and in a much more subtle and less controversial way than just waging an “Independent CFPA or Bust!” campaign. We don’t need total insulation from the Board of Governors either, because if consumer protection is made part of its charter, then the Board won’t be as hostile to consumer regulation as it has been in the past.
The problem is that when things get “subtle” the people who tend to win are the institutions who can hire full-time professionals to pay attention to the legislative minutia. A lot of people with real expert-level knowledge of policy issues are often frustrated with the crude framing of activist campaigns, but the virtue of “Independent CFPA or Bust!” is precisely that it’s not subtle and is controversial—ordinary citizens who work full-time jobs that have nothing to do with politics or finance or the law can figure out whether they’re winning or losing. And the answer is, they’re losing.
The Dodd-Corker plan could be made to work, but realistically for all the same reasons that an independent CFPA isn’t going to get through the Senate, no kind of strong, Fed-housed CFPA is going to get through the Senate.