Writing in Bank Director, Jack Milligan appears to have lost his mind:

The [CFPB] is the subject of this issue’s cover story, and as I worked on it I kept asking myself whether the country really needs another regulatory agency.  I have made my own calculation and decided the answer is yes. And no. [Emph. added] 

As it happens, Milligan is one of the most thoughtful and knowledgeable banking writers around, but if he thinks—if anyone thinks—that the Consumer Financial Protection Bureau is going to turn out to be anything other than an unmitigated disaster for the banking industry, he’s kidding himself.

Fact: Funding of the CFPB is not subject to Congressional oversight. The agency essentially names its own budget and is financed directly from the profits of the Federal Reserve.

Fact: The CFPB is not run, as other regulators such as the SEC are, by a bipartisan board of commissioners, but rather by a single, un-fireable individual appointed to a five-year term.  

Fact: The CFPB is nominally housed inside the Federal Reserve, but its director merely has to “consult” with other regulators (or the Secretary of the Treasury, for that matter), rather than take orders from them. He can do whatever he wants.

Fact: The CFPB has unlimited authority to gather data and information from the institutions it oversees; its power is so broad it even has a mandate to monitor their diversity practices. 

In all, the CFPB has a vast reach and is accountable to no one. As we have said before, this is a recipe for catastrophe. In his cover story, Milligan tries to argue that we won’t really know how destructive the CFPB will be for five years, once the agency has developed a record of enforcement. Baloney. Besides, it’s too dangerous to wait that long to find out. The agency could wreak regulatory havoc over that time. There are already a plethora of federal bureaucracies to protect consumers from abusive practices. We need better enforcement, not more watchdogs—and certainly not watchdogs that are unaccountable. As it is, banks are already regulated by  the OCC, the Fed, the FDIC, the FTC, the Justice Department, the CFTC, state banking regulators, and state attorneys general. Another new bureaucracy is going to help?

Jack also seems to have been seduced by the conventional wisdom that says that the credit crunch came about as a result of the development of certain inherently dangerous lending products such as pick-a-pay and alt-A mortgages. No. As a new study by the Atlanta and Boston Feds makes plain, that conventional wisdom is flat wrong. It wasn’t any newfangled products that caused the problems (most have been around for decades, anyway), it was lax underwriting that did it. There were already plenty of regulators around that could have stopped the craziness—and they didn’t. Next time around, the CFPB (which doesn’t even concern itself with safety and soundness, remember) won’t be likely to either.  

I am still in shock that Bank Director, of all magazines, wouldn’t see the CFPB for the monstrosity that it is. No other government agency has as much unaccountable power. We need streamlined effective regulation, not one more, even-more-powerful regulatory agency. Bank Director should be advocating for its reform or outright elimination. After all the years we’ve known each other, don’t go soft on me now, Jack!

What do you think? Let me know!