Investors could be in for more booms and busts as independence from the White House and Congress continues to erode for the Securities and Exchange Commission, the Federal Reserve and the other financial regulators, contends a leading academic observer of the agencies.
The assertion from Cornell University Law School Financial Regulatory Professor Robert Hockett comes as the Trump Administrations regulatory czar, Office of Information and Regulatory Affairs (OIRA) chief Neomi Rao said today the White House is considering legislation to put the “so-called” independents under OIRA’s authority to review, delay and alter proposed rules that exists for other federal agency.
Rao said OIRA could help insure rules coming from financial regulators are consistent with the law and that the cost-benefit analysis performed in their development is done right.
Speaking at the Brooking Institution, a Washington think tank, she claimed every administration since Ronald Reagan’s has considered doing it.
Cornell’s Hockett warned placing agencies such as the SEC, the Commodities Future Trading Commission and the Office of the Comptroller of the Currency could endanger the financial markets by making regulators susceptible to the whipsawing whims of public opinion rather than playing their time-honored role of moving in the opposite direction of the crowd to smooth out the cycles.
“That is the only way to prevent catastrophe. It is a dangerous thing to take away their independence. Financial regulators have to be counter-cyclical. They have to be contrarian,” said the professor.
Independence from detailed Congressional and White House oversight is also seen as an asset by some who claim financial regulation requires expertise the House, the Senate and the Executive Branch don’t have.
In the creation of the Dodd-Frank Act, then Senate Banking Committee Chair Christopher Dodd and House Financial Services Chair Barney Frank said often they were leaving the devil of the details for the first overhaul of the national’s financial regulatory system since the Great Depression to the agencies because they were storehouses of expertise Congress and its staffs lacked.
The term independence is written into the laws establishing the SEC and other financial regulatory agencies. It often refers to the independence of the agencies from the White House in part because the President can only remove Senate-confirmed appointees to them with cause.
There is a general agreement that the nomination process for regulatory officials who require Senate confirmation has become more partisan for decades.
Take the SEC.
It used to be Commissioners were chosen for their stature as securities lawyers with politics not playing a part.
Roberta Karmel says that was the way it was she was confirmed as a Commissioner in 1977.
“The politicization…it was never like that,” said the retired lawyer and academic.
Her view is the heavy partisanship of her 21 century successors has made it much harder for the SEC to get rule making done.