A New York Times graphic summarizing the changes proposed in the just-released Obama plan for reforming regulation of the financial sector, here, suggests both a possible regularization of the “czars” of which this administration seems quite fond, and a presidential position on the nature of independent regulatory commission independence that is both defensible and new. The plan proposes creation of a Federal Services Oversight Council, under the aegis of Treasury, that would replace a current White House working group, and have significant coordinating authority in respect of several independent regulatory bodies – the SEC, the CFTC, a new, “independent” Consumer Financial Protection Agency, and the Federal Reserve (which would be given substantially expanded authority). The Council would consist of (i) the Secretary of the Treasury, serving as Chairman; (ii) the Chairman of the Board of Governors of the Federal Reserve System; (iii) the Director of the National Bank Supervisor; (iv) the Director of the Consumer Financial Protection Agency; (v) the Chairman of the SEC; (vi) the Chairman of the CFTC; (vii) the Chairman of the FDIC; and (viii) the Director of the Federal Housing Finance Agency (FHFA). It would have a permanent, “expert” staff at Treasury, and it would be empowered to gather information from any financial firm and to refer emerging risks to the attention of regulators with the authority to respond.
Super-agencies like this have some precedent in government – the “God-squad” of cabinet officers empowered to create exceptions to protections that would otherwise be mandated by the Endangered Species Act comes to mind – but have any included the IRCs? The Federal Energy Regulatory Commission has a strange relationship with the Department of Energy, and there is the Occupational Safety and Health Review Commission’s relationship with the Department of Labor, but these are single line relationships, with the features for which independence is bestowed unaffected. Here, three or perhaps four independent commissions (depending on the details of the new Consumer Financial Protection Agency) would be placed under the wing of the Department of the Treasury, with the clear implication that at least some information-gathering responsibility would be in the new Council, and policy and enforcement direction could flow from it.
A White House claim to coordinate and supervise the behavior of independent regulatory commissions on matters of significant national importance will seem strange to some, but is, in my judgment, both entailed by the Constitution’s commitment of executive authority to the President and wise. The right issues are not whether, but how this is done. In a notable court of appeals case involving the Endangered Species Act creation, the Ninth Circuit rebuffed a presidential claim to command the behavior of a council composed entirely of at-will cabinet-level officers. In that case, this was because its decision was committed to on-the-record procedures. Although that reason is unlikely to be available here, the new Council will be acting in a context in which the instinct to separate decision from politics has been nearly universal. All over the world, regulators with
responsibility for monetary policy and financial regulation are, by one means or another, kept out of the direct control of politicians who might be motivated to use their actions for short-term political advantage. It is a condition of market confidence. So it seems important to assure that in creating this new mechanism for central coordination and direction of financial regulation, driven by the current crisis, the White House also creates procedures, transparency measures, and the like that will provide some assurance that raw politics will be kept at bay.
