With the November elections closing in, it should not be surprising to see continued political rhetoric surrounding a number of key administration nominations for various regulatory posts. This drama came to light again during Senate Banking Commitee nomination hearings this week.
Vacancies at some of the highest levels technically still exist at the Federal Reserve, the FDIC, the OCC, the FHA, and the OFR for example, which hampers the ability of these organizations to marshall resources and support for their various initiatives. Certainly the administration inflamed the process somewhat by forcing through the Cordray appointment during a Congressional recess. The political posturing, while making for good theatre, detracts from the more substantive issue of how we can expect the agencies to tackle such complex issues as systemic risk identification, long-term housing finance reform, and effective banking reform that ensures smart regulation that doesn’t strangle markets or promote excessive risk-taking. It is difficult if not near impossible to lead an organization through such unprecedented times as financial regulatory agencies face today without having confirmed leaders in place that have the endorsement of both the administration and Congress. Further, there has been some noise about nominating individuals from some of the very banking institutions that were entwined in the crisis, however, such views do not appreciate the importance that such experiences bring with regard to how financial markets operate. We’ve seen a number of examples in Dodd-Frank of how well-intended policy staff with little real-world experience outside of the DC area can devise regulations that have unintended consequences – a case in point are the proposed Qualified Residential Mortgage (QRM) provisions that for various reasons have been put on the proverbial policy backburner due to a number of glitches in the proposed framework. Avoiding conflicts of interest are clearly imperative at all times, however, recruiting the best and most experienced minds from industry has overall improved policy outcomes in the long-run. Both sides of the political aisle for the collective good need to ensure we have the right people in place at our regulatory agencies in a timely fashion.