Stier: Financial Reform Could Expand the U.S. Bureaucracy
The financial reform proposals now before Congress will place greatly increased demands on our government if enacted, potentially creating new federal agencies, reorganizing others and adding hundreds of legal requirements to administer and enforce.
The current politically charged debate has naturally focused on how to curb the irresponsible financial dealings by the banking and securities industries that led to the near collapse of Wall Street and the economic crisis that caused millions of Americans to lose their jobs, homes, businesses and retirement savings.
Yet as the debate has unfolded, little attention has been paid to what it will take in practical terms to effectively operate a significantly reordered sector of our federal government. If an overhaul of our financial regulatory system is approved, the triumph may well be short-lived should lawmakers fail to make sure that new and restructured federal agencies have the right talent, a solid management framework and the resources and capacity to accomplish the important tasks they have been assigned.
One only has to look at recent history to recognize the land mines that lie ahead — experiences that should prompt Congress to build a smart federal work force and management policies into the financial regulatory legislation at the front end rather than react afterward to scathing reports from the Government Accountability Office.
In the aftermath of the Sept. 11, 2001, terrorist attacks, for example, Congress sought to better protect the nation by creating the Department of Homeland Security through a merger of 22 agencies and 180,000 employees with different missions, cultures, management systems and procedures.
By 2007, the GAO concluded that the DHS was “hobbled by inadequate funding, unclear priorities, continuing reorganizations and the absence of an overarching strategy.” In December, the GAO said the DHS still had no comprehensive strategy for management integration.
In 2004, Congress created the Office of the Director of National Intelligence to coordinate the operations of the nation’s intelligence agencies because of the failures of 9/11. In November 2008, ODNI’s inspector general reported that the majority of ODNI and intelligence community employees, including many senior officials, were unable to articulate a clear understanding of the ODNI’s mission, roles and responsibilities. ODNI employees voiced confusion about the lines of authority, criticized the lack of information sharing and said the authorities of different agencies overlapped.
While the details of the financial reforms remain in flux, the House-passed legislation would strip six federal regulators of their consumer protection responsibilities and place them in a new Consumer Financial Protection Agency. The bill consolidates the Office of Thrift Supervision with the main federal bank regulator, the Office of the Comptroller of the Currency, and creates a new Federal Insurance Office, as well as a new Financial Stability Oversight Council to identify potential threats to the nation’s financial systems.
A pending Senate bill would create a new Consumer Financial Protection Agency, an Agency for Financial Stability to ensure orderly resolution of failing complex institutions, a Financial Institutions Regulatory Administration to handle bank supervision activities, and a new Office of National Insurance.
No matter what shape final legislation takes, our public servants will face difficult challenges. To increase the likelihood that a revamped financial regulatory system will be properly run and the public protected, there are a number of steps Congress should take. A few possibilities include:
Assigning a temporary group of highly experienced managers to focus solely on getting the new and restructured organizations up and running with regard to budgets, human resources capabilities, information technology and other key management functions, while senior executives concentrate on the day-to-day operations. Trying to simultaneously create and operate a new agency is akin to flying an airplane while trying to retool the engine — an impossible task.
Ensuring that the key management jobs in any new agency, including the chief operating, human capital and financial officers, are experienced career executives. The DHS and other newly created entities have had many politically appointed managers who had short tenures, resulting in a lack of continuity and stability.
Providing managers of these newly established agencies with the flexibility to hire and pay talented individuals who match their needs for a set number of important positions rather than being hampered by the cumbersome federal hiring process and the outdated pay system.
Allowing management teams to have considerable influence in determining which employees from existing federal organizations will be transferred to the new agencies, with the fitness for the new jobs being the main criterion. In the past, new agencies have ended up with too many of the least-valued employees from the organizations required to give up staff, turning these entities into the equivalent of a broken toy department.
There is a great deal at stake in the current debate — literally our nation’s financial welfare. Getting the policy right is essential, but making sure those policies are effectively carried out is just as important, and this will require a skilled work force, sound management and some much-needed foresight by Congress.
Max Stier is president and CEO of the Partnership for Public Service.