Create a 9/11 Commission for Financial Reform
Modernizing our nation’s financial services regulatory structure is no easy task. The current, functionally based structure dates back to the Depression era, with pieces hammered on or pried off by Congresses across the decades, but with its fundamental shape intact.
Today, ideas for change abound; there are no shortages of models from other countries, experts and practitioners to sort through and consider as Congress gears up to tackle a once- or twice-in-a-century restructuring. But is there enough time to do it right?
It’s not that the authorizing committees in Congress — the Senate Banking, Housing and Urban Affairs Committee and House Financial Services Committee and in the case of commodities and many derivatives, the Senate Agriculture, Nutrition and Forestry Committee and House Agriculture Committee — aren’t up to the challenge. Rather, the problem is that each committee has its own parochial turf. While the current financial crisis is creating understandable pressure to “fix— our regulatory system, we have no solid handle on what approach will best help us to avoid a meltdown in the future and no process in place to reach a national consensus on the specific changes we need to make.
Consider the rather fundamental question of how we fell into this crisis. Not one, but at least five Congressional committees (including the new Congressional Oversight Panel created by the federal rescue bill) are currently trying to answer that question. Layered on top of Congressional investigations and oversight is the Government Accountability Office, a new special inspector general and the inspector general of the Treasury Department. These investigations may well draw different conclusions and make different recommendations. There is a real danger of piecemeal “reform— and a continuation of our siloed regulatory structure.
A better approach would be to create an independent body, modeled after the 9/11 commission, to undertake a thorough, transparent and high-profile analysis of how the current crisis came about and to recommend a consensus-based regulatory blueprint for the future. Sens. Maria Cantwell (D-Wash.), Susan Collins (R-Maine), Johnny Isakson (R-Ga.), Kent Conrad (D-N.D.) and others support such legislation, which could be attached to an omnibus spending bill or other vehicle that would move it rapidly to the president’s desk.
Recall the work of the National Commission on Terrorist Attacks Upon the United States: the public hearings with top-level officials, including some who, as a rule, do not testify before Congress; the bipartisan deliberations of the commission itself; and the commission report, which transcended the standard tan-covered government volume to become must-reads for Members of Congress, administration officials and concerned citizens.
Not so well-remembered is that the 9/11 commission was convened more than a year after the attacks of Sept. 11, 2001, and that its report was not issued until July 2004. The result of the report, the most significant restructuring of the U.S. intelligence community in half a century, was achieved through overwhelming bipartisan support. That could not have occurred without the imprimatur of the bipartisan commission and the respect of both sides of the aisle for its leaders. Though forces from the defense, intelligence, judiciary and appropriations committees attempted to drive a stake through the intelligence reform effort, they proved to be no match for the momentum the 9/11 commission generated in support of reform.
Today’s pressure to reform the financial regulatory system is the result of legitimate concerns, but it has not produced a consensus on what should be done. The Bush administration, the Obama administration, the GAO, the Group of 30, and the Congressional Oversight Panel — to name only a handful — have issued reports on regulatory reform or are working on them. While there is some agreement among proponents of reform, many of the ideas are unfocused and unspecific. Note, for example, the Group of 30’s suggestion that countries “reevaluate their regulatory structures with a view to eliminating unnecessary overlaps and gaps in coverage and complexity,— or the Henry Paulson blueprint’s call for examination of “the evolving role of Federal Reserve Banks— and “the appropriate federal supervisor of state-chartered banks.—
A 9/11-style commission with sufficient time, resources and profile would assist Congress and the administration to do the job right. First, it would search for answers and work toward consensus recommendations. Second, it would give Congress, industry and other thought leaders time to analyze what went wrong and to think about the future. And third, as a creation of Congress, it could cut through the debilitating chaff of committee jurisdictional fights, just as the 9/11 commission was able to do.
The financial crisis demands action but not ill-considered haste. The best action Congress and the administration can take now would be to create a bipartisan vehicle that can analyze what caused the crisis, think through the issues and develop a broad consensus for specific and effective reform that transcends partisanship and turf protection. Let’s take the opportunity to do financial regulatory reform the right way.
Michael Bopp and John F. Olson are attorneys in Washington, D.C. Bopp served as associate director of the Office of Management and Budget from 2006 to 2008. Olson is a past chairman of the American Bar Association’s committees on federal regulation of securities and corporate governance.