On the occasion of its chairman’s resignation, at the Wall Street Journal Dennis Shaul writes this about the Consumer Financial Protection Bureau which he played a role in creating:
Richard Cordray’s resignation as director of the Consumer Financial Protection Bureau provides a great opportunity for President Trump to appoint a new director who can undo an unfortunate legacy of bureaucratic overreach and political bias. More important going forward is what we have learned from our experience with the CFPB to prevent future similar missteps.
The first lesson is that Congress should never again create an “independent†agency with a sole director, particularly one not subject to the congressional appropriations process. Under the law, the CFPB—unlike the Securities and Exchange Commission, the Federal Communications Commission, the Federal Trade Commission and other independent agencies—is funded by the Federal Reserve, a move specifically designed to avoid congressional oversight.
I had the privilege of working as an aide to then-Rep. Barney Frank, chairman of the House Financial Services Committee when the Dodd-Frank Act of 2010, which created the CFPB, was written. I realized that no bill is ever perfect and the CFPB would have its imperfections. The authors wanted the bureau to be a fair arbiter of protecting consumers, instead of what it has become—a politically biased regulatory dictator and a political steppingstone for its sole director, who is now expected to run for governor of Ohio.
An independent federal agency should be nonpartisan. A bipartisan commission on the model of the SEC and FCC would allow for better and more evenhanded decision-making. To show how partisan the CFPB became under Mr. Cordray’s leadership, not one of the agency’s employees made a contribution to Donald Trump’s campaign, while a multitude contributed to Hillary Clinton. The new director will have a partisan staff.
Who’d a thunk it? When given dictatorial powers, regulators will behave like dictators. But there’s a subtext here, too. The SEC and FCC have notoriously succumbed to regulatory capture and there’s every reason to believe that any agency tasked with regulating banks will inevitably become the creature of the banks.
IMO the solution to this is to let banks even the very biggest banks fail. Prosecute wrongdoing by bankers. Devote federal attention to helping those hurt by the failures rather than banks and their managers. The notion that they can be regulated as intended by the authors of Dodd-Frank is nonsense, flying in the face of human nature and experience. The Federal Reserve already has the job of regulating banks with all the power it needs. Why didn’t it do it? In the depths of the Great Recession I recall hearing testimony from the director of the federal agency that was specifically empowered and authorized to regulate credit default swaps to the effect that his agency just didn’t do its job. Why not?
