Is a congressional compromise on financial services regulation in the works? Steven Pearlstein of the Washington Post today reports the answer is “yes,” citing progress in negotiations between Democratic Sen. Chris Dodd of Connecticut and GOP Sen. Bob Corker of Tennessee. Specifically, Pearlstein points to a breakthrough on one of the major sticking points of the debate: whether to create a new agency to enforce consumer protection laws in financial service markets.
As described, the compromise proposal may alleviate many of the potential organizational objections to the idea. Nevertheless, the new regulator could hurt — rather than help — consumers.
The creation of an independent super-agency dedicated soley to consumer regulation has been a centerpiece of President Obama’s financial regulation agenda. But, while it was approved last summer by the House, the idea has languished in the Senate, as opponents have pointed out that a consumer regulation agency independent of other banking regulators would foster confusion and bureaucratic infighting, and actually undermine efforts to assure the safety and soundness of banks.
According to Pearlstein, Dodd and at least one Republican — Corker — have come up with an alternative: a single regulator with two divisions, one to enforce consumer protection laws, and the other to look after the safety and soundness of financial institutions.
The idea seems to address the organizational objections to the plan — facilitating coordination between the two roles. But before the champagne is uncorked, negotiators should take a step back — there are still many more troubling questions about this new regulator that have not been answered.
One is how extensive its scope will be. Will it regulate only banks with a national charter or financial institutions more generally, as Obama proposed? “Financial services” is a broad term, and could include virtually anything not sold with cash on the barrelhead. If jurisdiction is broad, the new agency could have a dangerously unlimited reach. An agency with broad jurisdiction could also undermine the work of other agencies, particularly the Federal Trade Commission, which has broad responsibility and expertise in consumer protection.
Even more important is what (if any) new powers the agency will have. It’s one thing to gather in one place the existing — and entirely sufficient — powers now held by a variety of other financial services regulators. But Sen. Dodd (and President Obama) have proposed to confer vast new powers on the regulator as well, including ill-defined authority to regulate “unfair” practices, limit sales practices, restrict advertising and more.
Such new powers are not only unnecessary, but harmful — limiting innovation and choice, and raising costs for the very consumers they are meant to protect.
As negotiations on these complex issues move forward, Congress should move with care and check the details. Containing the dangers of new regulation is not just a matter of organizational boxes.
Russian Prime Minister Vladimir Putin’s recent rant regarding missile defense and arms control shows that U.S. and Russian negotiators failed to meet the December 5th deadline to sign a new arms control treaty to replace the now-expired START Treaty, not because of technical difficulties, but because of a fundamental question: what both sides see as necessary to “reset” U.S.-Russian relations.
The START follow-on negotiations were to result in a treaty reducing strategic nuclear arms that also would serve as the cornerstone of the new bilateral relationship. Putin has made it clear that he, and presumably the Russian government, oppose U.S. missile defense systems because he views Russia’s preferred relationship with the U.S. as one based on its ability to threaten the U.S. with nuclear annihilation. He would include a provision in the new treaty that effectively prohibits an undefined set of missile defense options for the U.S. Putin’s statement clearly places the ball in the Obama Administration’s court in the arms control negotiations.
The Obama Administration will have to make a decision whether Putin’s view of U.S.-Russian relations is the right one and that the U.S. deserves to be threatened by Russian nuclear forces or whether he will use the negotiations to convince Putin and the Russian government that the appropriate basis for improved U.S. and Russia relations is for both sides to adopt more defensive strategic postures. Opting for the former will improve the near-term prospects for signing the START follow-on treaty, but at the expense of missile defense. The latter will require lengthy diplomacy, but will preserve missile defense options for both the U.S. and Russia and establish a clearly more appropriate foundation for improved U.S.-Russian relations.
That President Obama would not reject the Putin vision out of hand speaks volumes about his lack of confidence in the moral standing of the United States.