Lawmakers Push to Increase White House Oversight of Financial Regulators. One of the Worst Ideas from Congress in Decades

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Lawmakers Push to Increase White House Oversight of Financial Regulators

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Piggybankblog posted on 09/12/12

Cross linked with nytimes.com

Financial regulators may face a new obstacle in their efforts to police Wall Street.

Lawmakers are pushing a bill that could curb the influence of the Securities and Exchange Commission, the Commodity Futures Trading Commission and other regulators, according to Congressional staff members and government watchdog groups.

The measure, which a Senate committee is planning to debate this month, aims to empower the president in the rule-writing process. The proposal would allow the White House to second-guess major rules and mandate that agencies carefully study the economic effects of new regulation. The change could, in effect, delay a number of rules for the financial industry.

Some legal experts say the White House already has ample authority to impose such demands on independent agencies like the S.E.C. But critics say that the bill would stymie financial reform and threaten the autonomy of regulators that operate outside the presidential cabinet.

“Those who support preserving the status quo where Wall Street regulates itself will find much to like in this legislation,” said Amit Narang, a regulatory policy advocate at Public Citizen, a nonprofit government watchdog group.

The bill, introduced in the Senate last month, would offer a path to challenge the Dodd-Frank law, the sprawling regulatory overhaul passed in the wake of the 2008 financial crisis. Regulators have already encountered significant delays as the financial industry mounts legal challenges to the law.

The authors of the Senate bill — Rob Portman, Republican of Ohio, and Susan Collins, Republican of Maine — say they are not out to kill financial reform. Ms. Collins backed Dodd-Frank, and the lawmakers point to support among several Democrats, including their co-author, Mark Warner of Virginia.

“This is a bipartisan, consensus reform with broad support, and it will promote a more stable regulatory environment for economic growth and job creation,” Mr. Portman said in a statement.

The bill’s future is uncertain. Congress has little time to act during the election season, and the legislation is not on the Senate’s official agenda. But some Congressional staff members say it is rapidly gaining steam.

The bill was assigned to the Senate Committee on Homeland Security and Governmental Affairs, overseen by Joseph Lieberman, independent of Connecticut. The committee has discussed putting the proposal on the agenda for a Sept. 20 meeting, according to staff members briefed on the matter. The committee, which will most likely release its schedule on Wednesday, could use that meeting to amend and vote on the bill.

As a last resort, lawmakers may also include the measure in a broader appropriations bill. Such a move would be the latest Congressional jab at financial regulation. The House has passed a series of bills to temper Dodd-Frank. And this spring, President Obama signed the bill known as the JOBS Act, for Jump-Start Our Business Start-Ups, which loosened the rules surrounding initial public offerings as well as parts of a landmark settlement over stock research struck almost a decade ago.

Some regulators, sensing momentum around the new legislation, are resisting. The Federal Deposit Insurance Corporation and other financial regulators have raised concerns with lawmakers in recent days, in a bid to keep the bill off the Congressional docket, people briefed on the matter said. Regulators, whose cause is backed by advocacy groups like Public Citizen and Americans for Financial Reform, say the legislation would upend their way of doing business.

Under the bill, current and future White Houses would receive explicit authority to influence the rule-making process at independent agencies, a collection of several dozen government bodies as varied as the Federal Communications Commission and the F.D.I.C., S.E.C. and C.F.T.C. The Federal Reserve is exempt.

The president, through an executive order, would be allowed to mandate at the minimum a 13-point test for rule-making. That includes finding “available alternatives to direct regulation,” evaluating the “costs and the benefits,” drafting “each rule to be simple and easy to understand” and periodically reviewing existing rules to make agencies “more effective or less burdensome.”

For more “significant” rules — those that have an annual effect of at least $100 million on the economy — independent agencies would have to submit their proposals to the Office of Information and Regulatory Affairs, an arm of the White House that acts as a sort of regulatory referee. A negative review from the office would delay a rule for up to three months and force an agency to explain its approach.

Despite the change, some legal experts say the bill will have no trouble passing Constitutional muster.

“It doesn’t mean he can tell them how to decide, but it does mean they must consult with him — and that is the minimum required for the single executive the Constitution created,” said Peter L. Strauss, the former general counsel of the Nuclear Regulatory Commission who is now a professor of regulatory law at Columbia Law School. He added that he hoped “the bill will be enacted.”

The president currently exercises such power only over cabinet agencies like the Treasury and Commerce departments. That power was gained from executive orders issued by both Ronald Reagan and Bill Clinton.

Proponents of the bill say they are aiming to close what they call a “loophole” for independent agencies, which have struggled at times to fully evaluate the costs of their rules. The bill tracks a recommendation made in a report this year by the president’s jobs council.

But for years, Congress has balked before explicitly granting the White House such authority. Even Ms. Collins has questioned the approach, saying at a 2009 hearing that “the whole reason that Congress creates independent regulatory agencies is to insulate them from administration policies.”

Critics of Wall Street say the bill is an unnecessary check on regulatory power. The S.E.C. and its fellow financial regulators, they say, already draft cost-benefit analyses. The futures trading commission also recently tapped the Office of Information and Regulatory Affairs to advise on some of its rules.

If Congress and the White House ramp up the requirements, that will translate into months of additional delays, advocates say. The bill, they argue, will also spur court battles over financial regulation, potentially handing Wall Street another victory.

“Corporate interests will likely use negative White House reviews as a new weapon for challenging independent agencies in court,” Mr. Narang of Public Citizen said. “The bill could lead to increased litigation and greater regulatory uncertainty.”

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One of the Worst Ideas from Congress in Decades

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Piggybankblog posted on 09/12/12

Cross linked with bettermarkets.com

The New York Times today has an article with a dramatically understated title: “Lawmakers Push to Increase White House Oversight of Financial Regulators.” It’s a good article, but is mislabeled because the bill discussed would actually result in Congress subjecting ALL independent agencies (not just the financial regulators) to White House oversight and, indeed, control. The article also missed the most important consequence of the bill: a breathtaking, almost inconceivable power give-a-way by Congress to the White House. Here’s why it’s such a dumb idea:

First, if the Legislature passed this bill, it would be one of the biggest transfers of power from the Legislative Branch to the Executive Branch in history. Since at least 1936, independent agencies have been considered primarily instruments of the Legislative not the Executive Branch – that is why they are called “independent” agencies. If this bill became law, that would end almost 80 years of a primary method that Congress has used to implement its policy goals and 22 or more agencies would no long be independent of the Executive Branch; indeed, they would be expressly subject to Executive Branch control. This would be a dramatic and historic change.

Second, the substantive scope of the bill is sweeping and extends to: consumer products from toys to appliances; regulation of nuclear energy, including nuclear power plants; trade, communication and maritime regulation; occupational health and safety; labor relations; housing; mine safety; plus all the financial regulatory agencies; and more. It expressly applies to the CPSC, NRC, FERC, FTC, FHFA, FCC, ICC, NLRB, FTC, NTSB, plus all the financial regulators (including SEC, CFTC, FDIC, OCC, OFR, CFPC, Federal Reserve Board – other than monetary policy), among the many other independent agencies. (See bill’s definition of “Independent Agency” in 44 USC 3502(5), which can be found here.)

Third, the scope of the bill and the Executive Branch reach into the formerly independent agencies is all-encompassing. For example, the definition of “rule” is not limited to rules as commonly understood or as is typically understood in agency rulemaking subject to the APA. In the bill, “rule” is defined to include almost everything an agency does both internally and externally. (The definition is pasted below and available here.) Thus, the Executive Branch will not only be heavily involved in agency rulemakings, but will be deeply involved in almost everything an agency does.

Fourth, the bill specifies 13 specific, very onerous requirements that will consume untold time and resources from agencies that already have too much to do and not enough resources. Maybe most importantly, unlike the statutes passed by Congress governing these agencies, those requirements do not emphasize or prioritize the protection of the public or the public interest. Indeed, it is clear from the 13 requirements that costs to the industries regulated (from toy manufactures, builders of nuclear plants, ship owners and operators, telecommunications, Wall Street banks, etc.) are really the most important factor to be considered and weighted at every stage of regulation.

This is what Wall Street and its allies have been spending unlimited amounts of money and time to require at the financial regulatory agencies for years. Indeed, this is and has been their primary attack on financial reform. They know that if they can force the regulators to do what they innocuously call “cost benefit analysis,” which is really “industry-costs only analysis,” they can kill financial reform. (Better Markets has detailed this particular attack and what it would mean for the American people here.) This bill would extent that attack to all agencies and cripple their activities everywhere. It is the ultimate industry bill to kill, weaken or delay any and all regulations, no matter how important they are to the health, well-being, safety and financial protection of the American people.

So, no question, this would stop financial reform, as all the financial regulatory agencies would grind to a halt trying to do all this burdensome analysis. As bad as that would be — and that would be really bad because it would again deregulate Wall St, which would no doubt quickly return to its reckless high risk activities that caused the financial collapse and economic crisis — it would only be the most visible impact of the bill as all regulatory agencies from consumer products to nuclear power plants would be subjected to lengthy delays and be required to prioritize the industry’s costs over their duties to protect the public. That would be bad news for everyone.

The bill, if it was accurately labeled, would be called the “Unleashing Industry on American Families Act” or the “Legislature Gives Away Massive Power and Authority to Executive Branch for First Time in History” because that will be the effect.

 

Definition of Rule (from 5 USC 551): “rule” means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing;
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