The FDIC and The Fed Jockeying with Congress
So far, that is.
In 2009, we didn’t hit the 90th bank closure until after Labor Day.
This is no surprise to Sheila Bair and the FDIC, as they have been planning for this in their budgeting and staffing for quite a while.
At the Fed, however, things are different. As Yves Smith put it, “So now that the Fed sees the banking industry as being on the mend, it has become complacent.” She quotes her reader Doug: “So, they are currently comfortable with the pace toward ‘maximum employment’. Stunning. And adds grist to contention that official U3 of 9.5% is now acceptable.”
Nevertheless, they are slowly waking up to the fact that there is more to life, economically speaking, than the health of Wall Street and big banks. As Neil Irwin wrote on Thursday, “Fed leaders are weighing modest steps that could offer more support for economic activity.”
Perhaps Paul Kanjorski got their attention.
While the banking industry has gotten lots of other stuff scrubbed from the financial reform package, Kanjorkski has protected one reform, which Simon Johnson describes like this:
In essence, Kanjorski proposed that a group of 10 federal regulators be given the explicit power to break up big financial firms when they pose systemic risk. Not only that, the wording of the bill makes it clear that these regulators now face the expectation that they will use these powers.
This is a big shift in responsibility, away from the Federal Reserve, which implicitly had all kinds of emergency powers but would never have taken such action.
Who are the Kanjorski 10? This is the systemic risk council, which includes the treasury secretary (as chairman), the chairman of the Federal Reserve’s Board of Governors, the director of the new consumer protection agency, the head of Federal Housing Finance Agency, the chair of the National Credit Union Administration board, an individual who will represent insurance regulators and representatives from the each of the four standard federal regulatory agencies.
If two thirds of the council’s members agree (i.e., 7 out of 10), then a financial company can be subject to a variety of restrictions, up to and including the requirement that it divest itself of particular activities or more generally break up.
In a followup post at his own site, Simon adds:
This may all sound rather technical, and to some extent it is. But it is also intensely and pointedly political. The Kanjorski Amendment makes it clear that system risk must be assessed and dealt with. And it assigns clear responsibility for this issue – along with a cut and dried list of remedies.
The debate on big banks and the dangers they pose is far from over.
Back at the end of May, FDL’s David Dayen said the Kanjorski amendment
would require the systemic risk council to either break up or force restrictions on any financial institution that posts a “grave threat” to economic stability. This is just about the only pre-emptive action that the council would be able to take, if it makes the final bill.
Which makes one new job posting on the FDIC’s Careers page rather interesting. They are looking to hire a new Senior Congressional Relations Manager (#2010-OIG-0151), whose top two duties are
- Serves as the principal congressional relations advisor/expert and provides advice to senior OIG management about congressional issues.
- Develops and executes a comprehensive strategy for the OIG to work with members of the Congress, their staffs, and committees of jurisdiction in the drafting and development of legislation and legislative initiatives pertinent to the FDIC OIG, the federal Inspector General community, and the FDIC.
This could be quite an important under-the-radar hire, especially at a time when the pace of not-too-big-to-fail bank failures outpaces last year.