Not exactly making Sherlock Holmes proud, the detectives at the Federal Reserve who missed the housing bubble have finally discovered that banks have a reputation problem. At long last, a high level regulator has begun a conversation with banks on exactly this problem
In a speech delivered Feb. 28 in Atlanta, Federal Reserve Board of Governors Member Sarah Bloom Raskin plunged into the mud. “Reputations . . . have been tarnished,” Gov. Raskin understated.
The governor merits applause for channeling the public’s textured view of her own institution. “Many Americans direct their anger at not only banks, but policymakers as well. Because the economy pulled back from the brink of depression only through a massive and unprecedented infusion of public dollars, American taxpayers feel that they were forced into a position of accepting that the government had to put a lot on the line to save the financial system from ruin. And many of those taxpayers are still unhappy about such a massive government intervention that seemed to aid banks that were not held to account, while distressed households were left to pay the price.”
Raskin becomes the first to build a case that regulators should work to restore integrity in banking—for the banking industry’s own good. She cites figures that many Americans eschew banks. They’re not trustworthy, despite the fact that several thousand include the word “trust” in their name. (Fraudsters, of course, often begin a scam with the phrase, “Trust me.”)
For the mighty Fed, such self-criticism is most welcome. In her remarks, Raskin cites regulatory capture, but indicates that this problem deserves a second speech. “Regulatory capture” is a euphemism for the concept of regulated industries infiltrating the regulators themselves. There’s a revolving door between Wall Street and Washington. We’ve got “Government Sachs.” In the hour Raskin delivered her speech, a former Citicorp executive to whom Citi agreed to pay a bonus if he secured a “ high level” government job chaired his first Financial Stability Oversight Committee (FSOC) meeting in his role as Treasury Secretary. That’s Jacob “Jack” Lew, newly confirmed by the Senate despite concerns about that Citi bonus. Public Citizen asked federal authorities to investigate ethics violations connected with the contract. The FSOC is composed of the heads of all the financial overseers, including Federal Reserve Chairman Ben Bernanke.
Relegated to a footnote in the Raskin speech comes this: “The public also remains angry at policymakers for actions taken since the crisis. The erosion of public trust extends beyond financial institutions to the government officials that oversee them. For example, an American Banker reader poll conducted from December 17–23, 2012, found that a mere 8 percent of readers who responded thought authorities took the right course in the case of enforcement against HSBC for money laundering violations. As many as 47 percent said the Justice Department should have prosecuted the bank, while another 45 percent said authorities should have gone after the individuals responsible for the violations.”
The Justice Department explained they couldn’t exact stronger penalties from the criminal actions because they’d consulted with financial regulators who warned of “systemic repercussions.” Really!? Is the Federal Reserve now giving free passes for criminal action to major banks?
Raskin disclaimed that her speech represented her own views and did not represent those of the entire Federal Reserve Board. One wonders if Raskin originally buried this little bombshell about HSBC in a footnote. Or did Fed staff direct this burial, summing up the very problem of regulatory capture and poor oversight that lets banks run amok.
Sigh. At least there is one governor at the Fed who looks out the window and can see the right track.
Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch division. Follow him on Twitter at @BartNaylor.
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