Harry Hamburg/Associated PressElizabeth Warren, head of Consumer Financial Protection Bureau,told a House subcommitteeon Wednesday, “We do not envision new rules as the main focus of how the C.F.P.B. can best protect consumers.”
But will this fight feature a classic left vs. right set-piece confirmation showdown in the Senate? Or it will it be resolved with cloaks and daggers closer to the White House – with Treasury SecretaryTimothy F. Geithnerworking to prevent Professor Warren’s nomination, or her confirmation if she were nominated?
Ms. Warren was put in charge of establishing the agency by President Obama, but the Treasury retains the powers of the bureau until a permanent director is nominated and confirmed by the Senate — at which point the agency will fall under the authority of the Federal Reserve Board, while operating with a high degree of independence. The president has not yet nominated Ms. Warren to the post nor indicated if he will.
There is much to commend the left vs. right scenario. The Republicans, after all, want to argue that regulation is excessive in general and regulation of financial products is somewhere between unnecessary and dangerous for economic growth in particular.
This theme came up at times during the Dodd-Frank legislative debate onfinancial regulationlast year, but it was largely lost in the larger and more confused conversation.
Now Representative Spencer Bachus, Republican of Alabama, the chairman of the House Financial Services Committee, has Ms. Warren firmly in his sights – with themortgage settlement negotiationsas the flashpoint.
In arecent letterto Secretary Geithner, Mr. Bachus said: “Reports about the role played by political appointees in the Treasury department — including those affiliated” with the Consumer Financial Protection Bureau, “an agency that does not yet have any regulatory or enforcement authority — raise further questions.”
No matter that the Consumer Financial Protection Bureau became involved only when the state attorneys general asked for advice. Mr. Bachus is taking the opportunity to follow up on what hesaid recently: “In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks.”
The industry is unhappy because the proposed settlement — or, you could say, its transgressions with regard to foreclosures — could cost them up to $20 billion.
Mr. Bachus would not have a direct voice in any nomination hearing, which is the purview of the Senate, but plenty of Republican senators share his views, includingRichard C. Shelbyof Alabama, the ranking minority member of the Senate Banking Committee. And The Wall Street Journal regularlyjoins inthe chorus opposing Ms. Warren’s views.
Ms. Warren actually represents a much more nuanced view -– arguing that transparency and simplicity, from the perspective of customers, creates a more level playing field and is good for the industry.
Some community bankers seem to be on her side. She is also good at explaining this view, and a confirmation hearing would be the perfect place for the country to witness and hopefully participate in this discussion. (Readher recent speechto the Credit Union National Association orher testimonyWednesday to a House Financial Services subcommittee and make up your own mind.)
As Senator Sherrod Brown, Democrat of Ohio and a member of the Senate Banking Committee, pointedly framed the issues for theforeclosure debacle: “No person or company is above the law. And that’s good for capitalism, it’s not antibusiness, and it’s not a minor inconvenience that can be ignored in pursuit of bigger profits.”
But before you set aside time in the early summer for potentially gripping television from Capitol Hill, Ms. Warren has to get past Secretary Geithner.
During the Dodd-Frank debate, Mr. Geithner frequently asserted that “capital, capital, capital” was all we really needed to fix the financial system. Yet his team agreed to the Basel III agreement, which sets a lower bar for equity financing thanLehman Brothershad on the day before it failed. There is no sign that systemically important financial institutions will be required to have a significant extra capital buffer though this has supposedly not yet been decided.
And despite the undecided capital standards and large evident problems still facing banks (the foreclosure fiasco, commercial real estate woes, continuing high unemployment), the Financial Stability Oversight Council — which Mr. Geithner heads — is about to sign off on letting banksincrease their dividends.
This makes no senseat all in terms of economic policy. Yet that is Mr. Geithner’s position. (If anyone you know at Treasury thinks this assessment is unfair, I have laid out this casein recent posts.)
And having Ms. Warren on the scene — providing an alternative, pro-consumer perspective — may not be to his liking.
President Obamamissed his best opportunity to reform the financial system when advisers — including Mr. Geithner – recommended in March 2009 that he defer to top bankers, as James Kwak and I noted in “13 Bankers.”
His team further punted when they failed to push for real change in the spring and summer of 2010, while the financial-sector legislation was before the Senate.
Mr. Geithner and his people were instrumental in defeating the Brown-Kaufman amendment, which would have limited the size and the leverage (debt relative to equity) of the largest banks in the United States.
Will Mr. Geithner side with the Republicans in blocking Ms. Warren’s appointment? Will he now help prevent Ms. Warren, potentially the most effective modern regulator, from coming up for a vote in the Senate? That remains to be seen.