With Financial Services Conflict of Interest Act, Baldwin and Cummings Seek to Close Revolving Door Between Banks and Financial Regulatory Agencies
WASHINGTON, D.C. –(ENEWSPF)–July 15, 2015. In an effort to rein in conflicts of interest and revolving door abuses within financial regulatory agencies, U.S. Sen. Tammy Baldwin (D-Wisc.) and Rep. Elijah Cummings (D-Md.) today introduced the Financial Services Conflict of Interest Act – a desperately needed package of ethics reforms for those who regulate Wall Street.
At a press conference to announce the legislation, Public Citizen released a report (PDF) highlighting the extent of the problem the bill is designed to address. The report contains new data comparing the number of Wall Street and other business executives hired by the Obama, Bush and Clinton administrations that created potential conflicts of interest.
“The revolving door phenomenon – in which Wall Street plants its own former executives inside the agencies that oversee the financial services industry and lures regulators with prospects of lucrative employment on Wall Street when they want to leave government service – threatens the very ability of governmental agencies to monitor and regulate financial services in the public’s interest,” said Craig Holman, government affairs lobbyist for Public Citizen and report author. “Regulatory capture of public agencies by the business interests they are supposed to oversee is particularly acute in financial services because of the vast sums of money involved.”
Other problems the bill addresses include “golden parachutes” of million-dollar bonuses to executives who accept senior-level positions in financial regulatory agencies. Alumni from Citigroup, for example, head the Treasury Department and Office of U.S. Trade Representative, while other former executives and representatives of major banks serve as senior economic policymakers and federal regulators overseeing their former employers. Scores of other federal regulators have left government service to accept lucrative jobs with the banks and firms they used to oversee. Although the Obama administration in January 2009 attempted to stem conflicts with an ethics executive order, it is not enough.
According to data compiled and analyzed by Public Citizen, President Barack Obama has appointed 56 people with potential conflicts of interest between their government positions and the industries they oversee. President Bill Clinton appointed 64 during his two terms; President George W. Bush, 91 in his two terms.
“Revolving door abuses are a major reason that many of the Dodd-Frank legislative reforms have yet to see the light of day,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “Many of the legislative reforms have been sidetracked as regulatory agencies like the U.S. Securities and Exchange Commission have fallen far short in promulgating regulations to fully implement the law. And many financial regulators seem shy to enforce the laws that are on the books.”
Other problems Public Citizen documented include conflicts of interest experienced by procurement officers and regulatory capture, which occurs when financial firms place former executives in the regulatory agencies that oversee them.
The Financial Services Conflict of Interest Act would go a long way toward enhancing the integrity of financial regulatory agencies by reducing conflicts of interest and managing revolving door abuses. Among other things, the act would:
• Prohibit Wall Street firms from offering “golden parachutes” to employees who join the government;
• Prevent new regulatory officials from taking official actions that directly and substantially benefit former employers and clients;
• Prohibit financial regulatory officials who leave public service from lobbying or helping others lobby the government for two years; and
• Prohibit former bank examiners and their supervisors from taking employment with any bank they oversaw for at least two years after leaving government service.
“The financial crash of 2008 was caused by widespread failures in financial regulation and supervision,” said Bart Naylor, financial policy advocate for Public Citizen’s Congress Watch division. “If we again fail to protect against regulatory capture by Wall Street, our fragile economic recovery will remain at dire risk.”
The Financial Services Conflict of Interest Act would establish clearer boundaries between the government and the financial services industry and would help rebuild the public’s trust in our financial regulatory system.
Public Citizen’s report is available here.