The U.S. Chamber of Commerce is currently lending its reputation to the Wall Street lobby, who are eager to poke at their next Federal Reserve regulator while hiding behind an organization with a less toxic brand.
The Chamber made the unusual decision last Thursday to send an open letter to the Senate Banking Committee about Biden nominee Sarah Bloom Raskin, who is in line to become the next Vice Chair for Supervision at the Federal Reserve, the top regulatory guidance post at the most powerful central bank in the world.
“Some of Ms. Raskin’s past actions and statements have raised concerns among the U.S. business community and merit the Committee’s scrutiny,” wrote the Chamber’s Tom Quaadman, who has run the group’s lobbying for banking interests since the days of the 2010 Dodd-Frank Act. Indeed, reading the letter, it’s hard to see which members of “the U.S. business community” besides the biggest Wall Street banks would even know what Quaadman is writing about half the time, much less have fully formed opinions on these niche topics.
When most Americans hear “Chamber of Commerce,” they think of their local Chambers, which typically represent small businesses in the community and which are often good-faith participants in local government. The federal Chamber of Commerce is a whole different beast, a powerful lobbying consortium led by the largest corporate titans in America — Wall Street, Big Oil, Big Telecomm, and so on.
Quaadman’s letter is full of technical language and oozes elite respectability, but underneath all of the jargon, it’s just a bunch of Wall Street banks scared that someone might hold them to account. In fact, the Chamber fearmongers about topics that aren’t even controversial among people who are not bankers — Wall Street is just afraid that Bloom Raskin will, you know, actually do her job.
This is part and parcel of a flailing effort by the business lobby to paint Bloom Raskin as a radical, when she’s anything but: she just genuinely believes in the importance of regulation to a market economy. That is a tremendous threat to Wall Street interests accustomed to total capture of their overseers.
In the following sections, I’ll break down some of the questions the Chamber raises about Bloom Raskin and explain how they’re nothing which anyone outside of a few giant banks ought to be worried about. I’m skipping the questions on climate finance, which have been well covered elsewhere and which I’ve already written on in The Hill. My interest here is showing what Wall Street specifically is worried about with Bloom Raskin’s nomination, and why these are all nonsense concerns.
Covid-19 Pandemic Response
Quaadman’s first pair of questions concern the banks’ response to Covid-19. He asks Senators to ask Bloom Raskin if the banks were able to “comfortably weather the economic shock” and if they made “concerted efforts” (notably, not “sufficient efforts”) to help consumers, businesses, and communities.
These questions are clearly intended to make the banks look good. The banks probably hope to get Bloom Raskin on the record saying that they weathered Covid-19 fairly well, so that when she proposes a new regulation, their lobbyists can say “why do we need to change anything when the banks did fine in the last crisis?”
The answer is that the banks only did fine because the Fed bent over backwards to save them. As Americans for Financial Reform and Risky Finance explained, banks were allowed to remove almost $2 trillion from their balance sheets for purposes of calculating risk compliance. The entire bond and equity markets only survived because the Fed invented first-of-their-kind lending programs to buy up bad debt and surge liquidity into the market. Even if these programs were the least bad option, the positive results would be attributable not to well-regulated banks but a generous government.
Quaadman is playing a bit of a game when he asks in his letter “Was the existing regulatory framework adequate?” [emphasis added] The question is vague about what “existing” means: existing before Covid-19, or existing now? The banks’ relationship to the Fed, and all of their regulators, changed dramatically from the start of the Covid-19 pandemic through today.
But then again, what we’ve seen in the last few years is largely an extension of the “too big to fail” status quo that never changed after the 2008 crisis. This framework is more than “adequate” for the banks, but utterly unacceptable to anyone else.
Independence of the Federal Reserve
Quaadman goes on to ask Senators to “secure a commitment from Ms. Raskin to maintain the political independence of the Board and stay committed to its statutory mission.” He claims that Board members at the Federal Deposit Insurance Corporation (FDIC) recently pushed to “usurp the Chair’s authority” and warns of “similar politicization at the Federal Reserve.”
This is wrong for several reasons. One, the recent standoff at the FDIC was not an effort to “usurp” the authority of outgoing Chair Jelena McWilliams. On the contrary, McWilliams was attempting herself to assert unlawful authority and override a perfectly legal vote by the Board. That is not politicization, it is the basic practice of democracy upon which that organization rests.
But even if it wasn’t, this is a moot point. Unlike the FDIC, at the Fed, there’s no legal mechanism through which members of the Board of Governors can conduct business outside of the Chair’s approval. Even if Bloom Raskin wanted to “usurp” Chair Jerome Powell, she’d have no method to do so. Acknowledging this would require Quaadman to acknowledge that what happened at the FDIC was completely legal and ethical, so instead he doubles down on the vague implications.
And either way, Powell’s public statements appear to be largely aligned with Bloom Raskin’s on key initiatives — Powell committed to pursuing climate-related regulation at his confirmation hearing, and has said that he will defer to his Vice Chair for Supervision about other regulatory matters. While we at RDP are quite publicly skeptical of the value of Powell’s word, it would be major news if the Chamber, as a Powell ally, were to argue that Powell’s sworn testimony did not reflect his actual beliefs.
Finally, it’s worth mentioning that the Chamber was silent on a far greater threat to the “independence of the Federal Reserve” in recent years. President Donald Trump nominated Judy Shelton to the Board of Governors, who explicitly challenged the entire notion of the Fed being independent from the White House, saying she saw “no reference to independence” in the Federal Reserve Act. In fact, Shelton questioned why a central bank was even necessary at all. If the Chamber cares about central bank independence, then where were they in 2020?
Next, Quaadman asks the Senators to ask Bloom Raskin whether bank mergers can ever benefit competition; what standard she thinks is appropriate to measure competition; and what the justification would be to any update to merger guidelines.
A lot of this gets back to the standoff last year at the FDIC. The inciting incident for that fight was an effort to finally bring the FDIC into compliance with parts of the 2010 Dodd-Frank Act which required regulators to consider systemic financial risk when approving or declining bank mergers. Regulators, including the Fed, never actually implemented that part of the text of the law via rulemaking processes. It’s an example of how Wall Street defanged post-2008 financial reform — by dragging out the process interminably, knowing they could outlast reformers once the public’s attention and funds turned to other issues.
In the 14 years since the 2008 crisis, the Fed has not declined a single bank merger. There are fewer community banks than ever, and the biggest Wall Street players enjoy more monopolistic power than ever. So there are two excellent justifications for updating merger guidelines — they were never updated back when Congress told the agencies to do so, and the merger approval system for banks has clearly become too lenient.
Banking consolidation also isn’t victimless. As 30 organizations, including Revolving Door Project, wrote, the enormous consolidation in banking has harmed consumers through increased fees and lower interest rates for depositors, and small businesses through reduced credit at greater cost for local entrepreneurs.
Financial Stability and Oversight-Based Regulation
Quaadman closes on a doozy: questions for Bloom Raskin about which firms should be considered “systemically important financial institutions” (SIFIs), the most heavily regulated set of financial companies which are so interlinked with the rest of the economy that their potential bankruptcies could cause marketwide chaos.
The Dodd-Frank Act created the SIFI designation, and in the first few years, it applied not just to banks, but to a set of three insurance companies (AIG, Prudential and MetLife) and the General Electric Capital Corporation. (Robin Kaiser-Schatzlein has an excellent history of how GE became a financial casino.) Today, though, only banks sit on the SIFI list. It’s not as if only banks are capable of dangerously interlinking themselves with the rest of the economy — we believe that Amazon Web Services is now a systemically important financial market utility (SIFMU), for example.
Moreover, since Dodd-Frank improved banking regulation, more and more capital has fled to non-bank institutions like private equity and hedge funds, which are far less regulated. Then there are asset managers like BlackRock, which has a staggering $9.5 trillion in assets under management. Its Aladdin computer system allocates even more than that. Regulators badly need to get a closer look at these institutions to figure out what they’re doing with all of that money, and what dangers could arise from it.
That’s what Quaadman is trying to prevent. He wants to ask Bloom Raskin if she supports “activities-based” oversight instead of “entities-based” oversight — in other words, if she’s going to punish individual bad actions, or try to actually change the institutions which commit them. The problem with “activities-based” oversight is obvious: it only works after the harm has already been done. Yet it’s been how FSOC conducts its business for years now, thanks to BlackRock pulling one of the great lobbying grafts of the Obama era. Even Treasury Secretary Janet Yellen hasn’t wanted to touch this third rail.
The Chamber is playing games to dodge effective regulation. Bloom Raskin should be confirmed – so she can be an effective regulator.
PHOTO CREDIT: “Managing Cyber Risk and the Role of Insurance : panel 1” by CSIS: Center for Strategic & International Studies is licensed under CC BY 2.0