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Debate Season is Here
We’re trying something new at FinRegRag, audio recordings! Don’t call it a podcast, that implies more commitment than we’re willing to give. But sometimes reading about FinReg just isn’t enough.
This week Brian Knight and Jessica Paska discuss the things they wish presidential candidates would discuss.
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Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to email@example.com
Welcome to the Fin Reg Rant with Brian Knight and Jessica Paska. So Jessica, it's debate season. It seems like it happens earlier and earlier. Every cycle they take down the 4th of July stuff, they put up the pumpkin spice and people start debating over being president.
It's true. And I'm curious, Brian, in your perfect world, what would the candidates have been debating last night?
Well, okay, so my perfect world notwithstanding, I mean, you know, my my sort of perfect work world, there'd obviously be, it would've been all financial regulation, 24 hours or at least two hours of just solid financial regulatory debate. I understand that's too much to ask for, though. Two of your more prominent candidates, Vivek Ramaswamy and Ron DeSantis have both made financial regulatory issues and financial regulators relatively prominent parts of their campaign, although at a fairly high level of abstraction.
So what are some actions that you would wanna see the candidates debating in regards to how they could use the bully pulpit or what they could encourage Congress to pursue or even actions their agencies could take under a, a future administration?
Yeah, so I mean, I would love for, for candidates to actually come out with some fairly detailed and at least somewhat realistic proposals. And it's fine to be optimistic, obviously, if you're running for president, you have to be at least somewhat optimistic to put yourself through that. So, I, you know, I think, I think it's good to have sort of an ambitious proposals, but they have to be grounded in reality. So you can't say, for example, oh, I'm just gonna cut headcount by some huge amount. I mean, you're gonna have to go get, you're certain things are gonna have to occur before you're even in a position to do that. Either legislation or the courts are gonna have to come down in a certain way. And we, we can get to that, but like, in terms of what a president can actually do, there is, there is a fair amount, right?
And I'm gonna make a couple of assumptions here. One, I'm gonna assume if a Republican is the next president, that the Republicans also hold the Senate, though, probably not by like a filibuster proof majority. Okay. And they probably hold the house. So, so let's say legislation is possible, but not likely. But all the things you can do on a 50 plus one Senate, like appointments and reconciliation, those are at least in the realm of possibility. Fair. And, you know, the, so the first most obvious thing would be appointments. You're gonna have to fill all these slots. You're, you know, you a lot, you some of the agencies. The agency leadership has some, at least on in theory, some removal protection. It's an open question whether or not that removal, removal protection really is consistent with the constitution. I mean, this court might be willing to narrow or overturn the Humphreys executor case that says, yeah, you know, Congress can bake in removal protection. Certainly they, they were willing to do that in the cases of the CFPB and the FHFA. Maybe they're willing to do it for the FDIC. Maybe they're willing to do it for the Fed. The OCC is removable by the president already. The SEC per our colleague Andy Volmer is removable by the president. So you can fill these slots. Obviously in some of these cases there are party balancing requirements and stuff like that.
Once you have, okay, so you, you can fill 'em, who are you gonna fill 'em with? And I don't mean like spec specified individuals, but what are, what should the presidents be looking for? You know, that, that's a question I want to have. It's like, what are, what are you looking for in agency leadership? What, what view, what tendency, what, what, what, what, what philosophy are you looking for in your not potential nominees?
Do you wanna hear the candidates talking more about how they would staff agencies?
Well, yeah, I mean, look, if it were me, and thankfully it's not what I'd be looking for, I think what you need to be looking for is one agency heads with a positive agenda, right? I think what we learned in the Mulvaney interregnum at the CFPB is you can't just starve the beast. You can't just try to force everybody out. That doesn't work, right? It just comes back in the next, you know, when, when, when the administrations turn, you have to have people, I think Mark Calabria was a pretty good example of this at FHFA who have a positive agenda for what this agency is going to do, right? Can articulate a good version of what the agency is going to do, and then have people who will hire. I, that's, that's the other thing I think Mulvaney showed us at CFPB, you, you can't just do a hiring freeze and expect everyone to quit, right?
If you don't, you know, as, as Senator Warren will say you know, personnel's policy, right? If you actually want the agency to do the things you want them to do, you need to have enough staff there to do those things. And particularly if you're doing something that incumbent staff opposes philosophically, you're better served having your own people there to help. And while I don't necessarily think that agency heads need to be subject matter experts, if they're good at public administration, 'cause public administration is, is a skill unto itself. You need subject matter experts or else you're gonna get rolled by staff. You know, you're gonna get rolled by the people who do know how all the levers work if, if they're not aligned with your policy objectives.
And so that's one thing that I think people need to be talking about. It's like, okay, look, if I, if I take over, this is what I want my SEC to be about, this is what I want my FDIC or my Fed, or my OCC or my CFPB or whomever I want them to be, to be about this. I want them to focus on this. I also think we need, you know, obviously I, I would say this, we need to look for people who have, you know, a sense of sort of humility about the role of government and the role of an agency and an appreciation for the statutory and constitutional limitations. All too often agencies will throw stuff up against the wall and see what sticks, you know, see what the court will, will forcibly take down.
And if we get, if we get it through, great, right? I, I think agencies need to be themselves policing. Well, do we have the authority to do this? Is this constitutional? Is this a good use of our efforts given the multiple mandates that we might have? Which just goes back to the whole staffing question, right? Filling agencies with people who are willing to ask those questions and think those thoughts is important. And it isn't some sort of like selling out to the swamp or, or whatever, right? These agents, unless you can get Congress to actually unwind these agencies, which might not be a good idea, these agencies are gonna persist and someone has to manage and run them. And you may as well have people who manage and run them consistent with your broader vision of the role of government.
Okay. So if they're not discussing that, what else would you wanna hear?
I mean, more broadly about staff, right? I, I personally believe that we, we do need to do something about you know, the degree of how hard it is to re remove staff you know, civil service protections, which I understand were put in place to try to prevent the spoils or to, to undo the spoil system. But I think it's worth at least worth considering whether or not we're now in a situation where, like, it, it becomes too difficult to go against the agency's per self-perceived interests unless you can move people out and move people out for policy reasons rather than just malfeasance.
Wanna give the president more power in that regard.
Well, I think there's a, i, one, I do think that there's accountable, right? I'm not saying it's for certain, but I think there's a colorable argument that the president can argue that he needs that power constitutionally, right? He is charged with running the government. And to the extent he cannot hire people, certainly at like your relatively higher levels but still levels that are occupied by staffers, not, not politicals, who actually have discretion, who actually make these type of decisions. You can, I think you can make an, an argument. I don't know if the court would agree, but I don't think you'd get laughed out of court that the constitution requires the president to have that authority. 'cause The president's the one who won the election and will be held accountable at the ballot box.
If, you know, I, what would be ideal from like a civics perspective, I guess would be Congress passing a law you know, like a regular, normal legislation. I, I think you, you know, if you wanna be ambitious, if you wanna be aggressive, and obviously some of the candidates on the stage last night are nothing if not ambitious and aggressive. You might wanna try using reconciliation. I, I don't know if the Senate parliamentarian would allow it, but I think there's at least a, a non-trivial argument to say, look, if, you know, we can put all these, all these agencies that, that, you know, are these independent agencies or that have, that have you know, civil service protection, if we could more easily remove people, we could cut, we could cut, you know, the budget and we could help reduce debt. Again, I don't know if that would fly on the other hand, if the, if the parliamentarian agrees with it, is that reviewable by a court?
I, I don't know. But anyways, something to think about. And that then the next thing I guess, just to segue, right, because we're talking about money, right? Would be budgets. Okay? A lot of these agencies, not all of them, but a lot of them are not on the regular budgeting procedure. Now, the courts taking up the question of the CFBs funding in an entrepreneur appropriation. Yeah. Moving it onto whether or not, you know, it's, it's self-funding mechanism is constitutional. And people who don't wanna see the CFPB'S funding mechanism ruled unconstitutional, they wanna keep status quo. One of the arguments they'll make is like, well, but look, if you make the CFPB go on appropriations, well what about the OCC? What about the FDIC? What about the Federal Reserve? And my answer is, well, what about them? We have the Department of Defense and the Department of Justice on appropriations.
So the people who have the nukes and the people who control the guys with the badges and guns are on appropriations, do we really not need to have, can our bank regulators not be on appropriations? Now, having said that, the Fed is probably in the best position to argue no, that would be a bad idea because they're also the central bank. So they handle the monetary policy. And there's a non-trivial argument that you want your central bank relatively, or as, as independent of politics as possible. And appropriations are a tool by design to allow the political branches, everyone thinks about Congress, but per president or not president per professor, Eloise Pasachoff, I hope I pronounced that correctly. Yeah. She makes the argument that, and then she's absolutely right that like, you know, the president, like taking something, taking an agency off budget weakens the president's control as well. 'cause The president generally has to sign off on the budget and the president has the office of management and budget and budget as a tool of control. But anyway, let, let's stipulate that the Federal Reserve in its monetary policy function probably has the most defensible argument to not being put on appropriations. So separate that out, but you know, a lot of the my, my understanding of the argument against putting regulatory agencies on appropriations is, well, it makes those regulatory agencies too vulnerable to political interference by Congress, which gets captured by special interests.
And I guess my response to that is, well, one, we have lots of regulators who are on appropriations, including the SEC, and that seems to work okay. But more importantly, what one person considers sort of political interference, I would consider, and I, I, you know, I think there's a non-trivial argument that the Constitution considers that to be demo necessary democratic accountability. And if the American people are dissatisfied with how Congress funds various agencies, they have a very direct mechanism to make that view known. And it's called voting. So, you know, I I say let's embrace that and it, you know now that being said, it is by no means a sure thing that the court will strike down the CFPBs funding structure. And even if they do strike down the CFPBs funding structure, they may distinguish that and the FDIC and the OCC well, the OCC Yeah, the OCC and the Fed, like there are means by which a court, if it were so inclined, could distinguish these agencies. So just because the CFPB strikes even if the CFBPs funding structure is struck down, that doesn't mean that that domino will, will immediately knock down all the other dominoes.
Okay. So is there any other topic that you would wanna hear the candidates weigh in on outside of personnel and funding structure for the financial agencies?
Well then, I mean, these agencies act actually have to, like, operate on a day-to-day basis, right? Okay. I mean, so I think those are, and and this does get to your, this does get to your appointments and your staffing and all of that, right? How do these agencies operate? And are they app, do they operate with appropriate humility? Do they operate with appropriate vigor in areas where vigor is called for, do they operate with appropriate transparency? And that's an area particularly in say like the, your banking regulators where there's, there's dire need for more transparency, more accountability because of the nature of banking regulation. David Zaring has a, has a very good law review article in the Iowa Law Review that, that talks about this professor Julie Hill, has great work on this that, you know, banking regulation is this very opaque regulation. And the regulators themselves have so much power over banks and can hurt banks in a variety of ways that never actually leave a mark, right?
So it, we, there really are questions about whether or not there is an appropriate amount of transparency, accountability, adversarialness in the regulatory process where banks and other reg regulated identities feel like they can, if they feel like the agency's getting the law wrong, can avail themselves of the procedures, including lawsuits that they, that they in theory, should be able to use or will doing. So just set them up for sort of further punishment down the road. So, and you know, the having, having that, fixing that in mind when you not only set up agency leadership, but as you fill the agency to the extent you can, is one thing you can do to help address that. And a somewhat bittersweet example is the FDIC under Trump established a new and more independent and more transparent mechanism for banks to appeal supervisory decisions. 'cause the previous mechanism was technically independent, but functionally not and was pretty opaque. Well, under the Biden administration with the new leadership, they immediately reverted that decision and restored with a few minor changes, the old system. But that what that does show is that different agency leaderships can influence and can shape how these internal processes work.
Well, this has been a very informative rant so far. Are there any other topics that you want candidates weighing in on?
Well, okay, so I understand that if you listen to me, you think, all I thought about was fin reg. And that's not, that's not true pro I promise, but I, all I'm gonna talk about is fin reg but also fin reg adjacent. Like there's a lot of fin reg adjacent stuff like financial, the financial services sector and the financial system is so critically important to functioning, everyone functioning. And there are interactions with other parts of the government. I mean, there's controversy now there's an investigation in the house about banks disclosing information about their customers who may have been in the DC area around the January 6th riot and who may have also purchased a firearm or something like that. And there's not a ton of information that's public, more is coming out. But from what I've seen so far, it seems like it, you know, the FBI probably made these requests and there's the, there's a law that governs transmitting this type of information, the right Financial Privacy Act, and it's a little bit unclear as to what, and, and it specifies different procedures for depending on whether the banks are volunteering the information or if law enforcement is asking for it, and what type of information it is, and exactly what type, like what type of information about the customers being disclosed and, and all that.
So we need to know more about that type of thing. But it, it may well be worth considering whether things like the RFPA, I mean, it's definitely worth considering whether the RFPA, the Bank Secrecy Act, these things that RFPA, Right to Financial Privacy Act, Bank Secrecy Act whether these things need to be reformed to, to better adjust the balance between privacy and access by the government. Because look, there's no, there's no dispute that financial information can be a very effective tool for law enforcement. I, I'm not gonna dispute that and that that's a legitimate interest. But like so many other things that we deal with this balance between privacy and access, we, we, we, we try to, we try to, to strike the right balance and for a host of reasons that we don't have time to get into here, right?
Like the, the balance is very much pushed towards minimal privacy, maximal access when it comes to financial services. And I, I'm not convinced that that's good. And, you know, Congress can and should take this issue up, but of course the president, while they're staffing not only the financial agencies, but the FBI or you know, other law enforcement agencies can, can pick people who are more sensitive to that balance. Now, obviously there's a real potential political cost to doing that. And I, I, I don't wanna be insensitive to that concern, and I don't wanna be con insensitive to the concern from law enforcement that, hey, we need to be able to, like January 6th was this incredibly serious crime, we need to be able to access information. But sometimes it's, it's not a, you know, or I should say American privacy doesn't say that.
The law doesn't as a general rule, it doesn't say that the law can't get information, but it specifies what process needs to be followed and things like having to go get a warrant before a neutral judge. And so we're, it's not necessarily a, a statement or, or, or a view, it's certainly not my view that like, oh, your financial information should be 100% off limits under all circumstances. No, but should, should law enforcement have to go through more robust process to, to prevent fishing expeditions or needless disclosure or that type of thing. That's where I think a good, a good policy debate in Congress should occur. But also a president should look when they're staffing leadership to people with more nuanced views on that. So look, I, I think I've ranted long enough. Thank, thank you for giving this me this opportunity to get this off my chest.