Matt Stoller is a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller
Today, to approximately no one’s surprise, the Republicans in the House Financial Services Committee are going after the Consumer Financial Protection Bureau. Congressman Barney Frank and Brad Miller, though, have introduced something pretty interesting into the mix. They have struck back by using the same attacks the Republicans are making against the CFPB on the bank-friendly regulators at the Office of the Comptroller of the Currency and the Federal Reserve. Specifically, Frank and Miller have proposed to make the OCC and the Federal Reserve, the most important bank regulators, subject to Congressional appropriations. Right now, those two agencies fund themselves through money printing (the Fed) or assessments on the banks (OCC). What Frank and Miller are doing would be a major step forward for democratic accountability over our bank regulators.
The full story is as follows. The Republicans in the Financial Services Committee have recommended that the budget for the CFPB be cut to $200M total for 2012 and 2013 (see Section 331). This is a substantial and unwarranted reduction in resources for an agency that is tasked with enforcing Federal consumer protection laws against financial misbehavior. Much more significantly, the Republicans are going to stipulate that the budget for the Consumer Financial Protection Bureau be appropriated every year by Congress. Right now, the CFPB gets an automatic amount from the Federal Reserve. The Republican bill would basically say “Congress gets to give you an allowance every year, and you live on it.” Once that happens, Congress can attach all sorts of strings to the money, like “you can enforce this rule but not that one”, or “no money for you if you go too hard on our campaign contributors.” This is, over decades, one of the ways the SEC was culturally neutered. It’s how the FCC is intimidated. These agencies have been asking for years to be able to get its own source of revenue, via fines or other mechanisms.
Interestingly, the CFPB isn’t the only Federal banking regulator that has its own dedicated revenue stream free from Congressional pressure. In fact, they all do. The Office of the Comptroller of the Currency, for instance, is funded via assessments on banks, or “clients”, as OCC Chief Counsel Julie Williams calls them (or so I’m told). Williams is the key villain behind most bank-friendly regulatory decisions over the past two decades, but her general anti-consumer and predatory behavior is baked into the DNA of the regulator. In the 19th century when it was first set up by Abraham Lincoln, the OCC used to allow its examiners to get an “honorarium” from the banks they supervised. Now the OCC is responsible for, among other things, preventing state legislators from capping ATM fees, quashing state and local laws against predatory lending, allowing its supervised banks to expose themselves to a massive housing bubble, and pretty much letting banks to do anything they want to consumers with credit cards. Obviously there’s also the foreclosure crisis nightmare, which you can really hang at the doorstep of the OCC (and I’m also told, Julie Williams). Key to all of this is that the OCC is simply not subjected to budgetary pressures from Congress. No elected member of Congress can say “if you don’t assess second liens accurately we’re going to cut your budget”.
And then there’s the big enchilada, the Federal Reserve, which is of course not subject to Congressional appropriations because of its vaunted “independence”. Interestingly, the Fed, when it was officially controlled by Treasury in the 1930s and 1940s (up until the mostly unknown and critical fight with Truman that produced the Fed-Treasury Accord), financed the New Deal, World War II, and saw unemployment drop to 1% as inequality collapsed and America became a middle class nation. The Fed finances itself through interest on the bonds in its portfolio, essentially printing money to do so. The Fed’s reserve banks are still private entities, and they still pay dividends to member banks. No member of Congress can do anything to the Fed, it’s an unaccountable set of quasi-private banks that often respond to Wall Street.
This can all change if Congress wants it to, and that process starts with the budgeting recommendations put out by the Financial Services Committee. Frank and Miller are responding to the Republicans in a partisan fashion – you want the CFPB funded by Congress? Fine, we’ll put that on the OCC and the Fed, as well. These proposals, while they are in some ways kabuki, are fundamentally getting at the undemocratic nature of our banking regulators. The Republicans have a point – the CFPB shouldn’t be funded without guidance from Congress. But there’s a much more significant problem here – the far more powerful and important OCC and Federal Reserve should also be subject to some sort of democratic check on their power. I’d take the trade on all of these regulators – subject them all to Congressional appropriations.
It’s time for the public to start governing, and that means that institutions like Congress need to step up. Most people at this point think so lowly of Congress that they want politicians to stay away from all power. What they don’t recognize is that politicians have already done this, and have delegated all power to the banks and powerful interests. Like any institution, though, when Congress is called upon to actually govern, when members are given responsibility, they take their job more seriously. Right now, members have a limited set of job expectations, which range from whining to offering earmarks to doing legislative favors for campaign contributors to looking busy to protecting the shrinking set of existing programs for the poor and middle class. That’s what the public expects. Actually seizing the reigns of power over banking regulators, like starting to challenge the imperial Presidency on matters of war and peace, would change these expectations, and begin a shift in our culture.
We’ll see, later today, how the votes come down on Miller’s amendment on the OCC and Frank’s amendment on the Fed. This is going to make it tough for the Republicans, because in order to defeat these amendments, they will have to vote to allow the Federal Reserve to fund itself with printed money, and the OCC with money it gets from banks.
Miller’s amendment on the OCC is below. I called the Financial services Committee minority side, but I couldn’t get Barney’s amendment. It should eventually be posted here.
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