Hurrah for Elizabeth Warren! The new Senator from Massachusetts is shining a bright light on so-called financial regulators from her perch on the Senate Banking Committee. This past week Warren asked officials from the Comptroller of the Currency (OCC) and the Federal Reserve to provide information to the public and the Committee.
These two federal agencies – each with responsibility for overseeing financial institutions – proved pathetically unwilling and unable to protect the public during the financial meltdown of 2008.
Warren and banking committee colleagues asked Daniel Stipano of the OCC to turn over information on what happened that led to massive foreclosures in 2008. Stipano claims there is a “longstanding policy not to publish information deemed part of the bank oversight process.” Stipano also said disclosing investigative findings by outside consultants in their review of the foreclosure crisis would make “institutions less willing to be forthcoming with us” during bank examinations.
The problem, which former FDIC Chief Sheila Bair describes in her book “Bull by the Horns,” is that these consulting firms are hired to review bank practices and paid princely sums to do so by the very banks themselves, which is a built-in bias.
PricewaterhouseCoopers told the Senate it received a whopping $425 million to conduct reviews for US Bancorp, Citigroup, and SunTrust Banks. The total amount made for conducting reviews is roughly $2 billion.
Senator Jack Reed, a great consumer champion himself, argued at the hearing that the consulting firms should be paid by the regulators instead. That’s a good idea – it does mean that tax dollars could be going to pay these fees (though there could be fund created to pay for consultant review by imposing a surtax on banks) but there are two advantages. First, the government can negotiate consultant services for much lower rates (government doesn’t always strike great bargains for professional services but it often does), and second, this would remove the bias inherent in banks hiring consultants to review their practices.
One thing is clear: Senator Warren’s voice on the banking committee is proving to be the game changer consumer advocates had hoped for.