Potential hard feelings between Treasury Secretary Tim Geithner and Elizabeth Warren aside, the financial services industry is already gearing up to influence the next stage of financial regulatory reform, which is the design of new rules reining in Wall Street and the actual construction of the Consumer Financial Protection Bureau. There are plenty of regulations that have to be made, and plenty of discretion for regulators in crafting them, so bank lobbyists will have ample opportunity to influence a process that will be nowhere near as high-profile as was the regulatory reform fight on Capitol Hill.
But, first things first, the financial service industry is trying to influence who becomes the inaugural nominee for CFPB director:
“This is akin to a Supreme Court nominee for financial services,” Richard Hunt, president of the Consumer Bankers Association in Arlington, Virginia, said in an interview. “We are taking this very seriously.”
“All of that power is in the hands of one person. It’s going to be the closest approximation to a czar that Washington has ever seen,” said Joseph Lynyak, a law partner at Venable LLP who represents financial services companies. This conveniently leaves aside that the CFPB’s rules can be vetoed by the newly created Financial Stability Oversight Council — which is composed mostly of bank regulators — but it’s true that the CFPB’s director is going to have a lot of influence over in which direction the agency sets its initial course.
As Matt Yglesias wrote, “effective, high-prestige public agencies (the United States Navy, the Federal Reserve) attract a lot of motivated applicants and thus get on a self-reenforcing path of effective personnel and high prestige. But when you start something new, everything is wide open.” And as the Bush administration ably demonstrated, appointing heads of regulatory agencies who have no interest in actually regulating anything can turn those agencies into nothing more than a punchline.
For instance, remember SEC Chairman Chris Cox? Under him, the agency meant to be on the front lines of policing financial fraud became an afterthought and then released a laughable response plan long after the financial crisis was already well underway. But that was just par for the course for administration that had no interest in reining in financial services industry excess. The CFPB has the potential to be a game-changer for consumers, but only if it does not come under the thumb of the bank regulators or have a director unwilling to stand up to the banks themselves.
“’There’s always that possibility’ that Wall Street lobbyists will succeed in weakening the bill’s provisions during the rule-making process,” said Senate Banking Committee Chairman Chris Dodd (D-CT). So in that sense, the work of financial reform is still very much underway.