By Erin Sherbert
By Erin Sherbert
By Leif Haven
By Erin Sherbert
By Chris Roberts
By Kate Conger
By Brian Rinker
By Rachel Swan
Would the new administration tackle the big banks? Last winter, 12 hours after being sworn in, Geithner summoned Fine to a meeting. "He asked me what was on the mind of the community bankers of America," Fine recalls. "I said, 'Do something about 'too-big-to-fail.'"
Fine says he told Geithner that he was worried that taxpayers would be on the hook again for further bailouts, and that the economy would suffer. He raised the anticompetitive impact of propping up Citigroup and Bank of America. "Why are they treated differently from us?" he recalls asking.
Fine says Geithner's response was, in effect, "I understand where you're coming from, and it's something the Treasury should address." Then, Fine says, "I asked him point-blank if he thought these firms should be bailed out. He looked me in the eye and said, 'No, I don't.'" Geithner has hinted to Congress about ultimately getting rid of the "too-big-to-fail" concept, but his suggested measures "don't go nearly far enough," Fine says.
Recently, Paul Volcker, the former Fed head and current Obama adviser, indicated that the White House remains committed to the concept, meaning that the megabanks will continue to have a safety net and may ask for more bailouts. At present, 19 financial institutions are on the protected list. Their business model hasn't changed materially since the crisis. They're still bloated and addicted to gambling. They could have benefited from prompt correction, but were spared.
Washington may very well foist one unified regulator on the industry, a consolidation that, at first glance, could seem like a good idea. The Big Four banks — Citi, Bank of America, Wells Fargo, and JP Morgan Chase — now control about 53 percent of all bank assets; the biggest 20 banks control 80 percent. There's no denying the appeal of a Transformers-type battle between a heroic Autobot regulator and the financial world's Decepticons. But that's make-believe.
The cyclops theory of bank regulation that would fuse all four bank regulators — the Fed, FDIC, Office of Thrift Supervision, and Office of the Comptroller of the Currency — into one "superagency" is actually the heart of a bill by Sen. Chris Dodd (D-Conn.) — after Obama, the number two recipient of AIG money in the 2008 campaign cycle. A number of other proposals have been floated by the administration and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. Those drafts have been discussed for almost a year and have mutated all the while. What we'll end up with is uncertain, but comprehensive reform is unlikely to be hashed out until after health care is settled.
Will it result in real protection or platitudes?
Fine is concerned about such a monolithic regulator, saying the big boys would be able to influence it more easily than they can the current mélange of the Fed, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision. But the structure of such a new beast is far from set. For instance, Dodd wants the Fed to lose its regulatory hold over banking and consumers (especially credit cards). Conversely, the Obama administration strives to make the Fed the über-regulator of banks and "shadow banks" — nondepository units like Countrywide and GE Capital. You may have heard some TV pundit say that this is a great idea, that the Fed has tremendous expertise, and that Bernanke has done a fabulous job.
But the idea of Super Fed as top financial cop as well as the nation's central bank is colossal and colossally bad, and not just because the Fed is notoriously secretive — the opposite of Obama's pledged "transparency." The Fed chair is, by law, independent and doesn't answer to the president or Congress. A lax chief — and there's every reason to expect him or her to be lax, considering the closeness of the Fed to banking and other financial magnates, and the baleful history of Fed enforcement — could not simply be removed.
But all hope is not lost. The administration and congressional Democrats do support a promising reform called the Consumer Financial Regulatory Agency (CFRA). Obama's 80-plus-page proposal contains yawning gaps that Congress may fill and the financial industry will fight: Insurance isn't covered, nor are 401(k) retirement plans, and the majority of financial consultants and planners (including all the mini-Madoffs out there) evade scrutiny and standards. But the CFRA would actually wrest consumer-protection powers from the Fed, which has them now and has failed consumers utterly.
Critically, such an agency could allow scammed consumers to go to court against the securities industry. This is major. Any claimant who has been through the securities industry's kangaroo court might prefer the courts of Iran. At present, individual rights against financial predation are about where antidiscrimination protections were 60 or 70 years ago.
Of course, this is a bridge too far for the financial industry. Its lobby, the most powerful in recent American history, has won every major legislative battle in the past 20 years. Wall Street lobbyists and their congressional allies can be expected to fight hard. They'll call in all their markers to ensure that securities-fraud and other financial-crimes cases won't be heard in front of hometown juries.