CONGRESS DROPPING THE BALL

Five years after Dodd- Frank, Fed bank supervisory post still vacant

Federal Reserve Chair Janet Yellen may be the second- most powerful person in the country and one of the most powerful women in the world, but she had to take some time out last week to play political football.

Or, more accurately, to become a political football, as a Republican- dominated House pursues its agenda of rolling back new bank regulations in the Dodd- Frank financial reform.

The vice chair of an organization is supposed to take the place of the chair when appropriate, but in an Orwellian twist typical of the dysfunctional polarization in Congress, Yellen as chair appeared before the House Financial Services Committee to testify about its regulatory activity because the vice chair responsible for that sector was not available.

In fact, as Committee Chair Jeb Hensarling, R- Texas, observed, “no such person exists,” even though the 2010 Dodd-Frank Act created a new vice chair position.

It is perfectly reasonable that the Fed account to Congress for its regulatory activity, just as other regulatory agencies must, and clearly, as Hensarling noted, the Fed should not be allowed to conceal its bank supervision behind the confidentiality that shields its monetary policy deliberations from political interference.

Once again, Hensarling and fellow Texas Congressman Randy Neugebauer bemoaned the fact that President Obama has not appointed a Fed vice chair for supervision as mandated by Dodd- Frank, even though one of the current Fed governors, Daniel Tarullo, effectively exercises that role.

Here is where polarization, dysfunction and George Orwell make their entrance.

It is pretty clear why Obama has not nominated Tarullo or anyone else to the vice chair position — any such nomination could be held up by the Senate for months, or, in the case of the deadly efficient Tarullo, obstructed until it was withdrawn.

The White House noted once again last week that two pending nominations to the Fed’s Board of Governors, dating back in one case to January, continue to languish as the Senate Banking Committee refuses to act on them.

Let’s not forget that the current committee chair, Sen. Richard Shelby, R- Ala., was instrumental in blocking the 2010 nomination of MIT Professor Peter Diamond to the Fed board on the grounds that Diamond, who won the Nobel Prize in Economics in the 14 months he was awaiting confirmation, didn’t know enough about monetary policy.

In this environment, it becomes less of a mystery why Obama has not exercised the authority given him by DoddFrank to appoint a vice chair for supervision.

Tarullo was one of his first appointments and sailed through confirmation in those halcyon days in 2009 when Democrats had a commanding majority in the Senate — and before the banking lobby was fully aware of how ruthless Tarullo would be in enforcing financial reform.

There was a time, back when Washington functioned in the interest of the public welfare, that the Senate deferred to the president on most nominations rather than turning each and every one into an ideological tussle.

The confirmation gridlock in the Senate does not keep House chairs such as Hensarling from complaining about White House inaction and insisting that if there is no supervisory vice chair to make the semiannual report to Congress prescribed in DoddFrank, then the chairman must appear. And so Yellen, an accomplished macroeconomist and veteran monetary policymaker, who is skillfully steering the Fed ever so gently to a normalization of monetary policy with the prospect of raising interest rates next month for the first time in more than nine years, spent three hours in front of the committee — and countless hours in preparation for that appearance — to talk about regulatory activity.

Yellen acquitted herself with her usual aplomb, defending the Fed’s bank supervisory actions while acknowledging there was still work to be done.

Dodd- Frank significantly enhanced the Fed’s authority in regulating banks, and particularly the mega- banks that were too big to fail.

And Tarullo has exercised that authority to the hilt, forcing the banks to rein in risky activity and streamline their operations by implementing much stronger capital and liquidity requirements as well as specific restrictions.

So there are certainly legitimate questions about the exercise of this power — from Hensarling’s general desire for accountability to specific questions like the one from Rep. Scott Garrett , R- N. J., about cost- benefit analysis of individual regulations and of the regulatory burden as a whole.

Democrats, too, have questions and criticisms for Fed regulators. California Congresswoman Maxine Waters, the top Democrat on the House panel, sought reassurance from Yellen at last week’s hearing that regulations were be-

Dodd- Frank significantly enhanced the Fed’s authority in regulating banks.

ing tailored to community banks so as not to be unduly burdensome. But the hearing last week was far less about the safety and soundness of the financial system and much more about the political gamesmanship that plagues Washington.

ANDREW HARRER, BLOOMBERG CHIP SOMODEVILLA, GETTY IMAGES As congressional gridlock continues, it’s clear why President Obama hasn’t nominated the deadly efficient Daniel Tarullo, left, to vice chair. Fed Chair Janet Yellen has had to pick up the slack.