As the Senate Banking Committee held confirmation hearings for two of the potentially toughest federal regulators governing the financial sector, members of both parties demonstrated a sharp political divide over one of the appointments.
Should 1 director head the CFPB?
Facing confirmation as director of the Consumer Financial Protection Bureau, Richard Cordray faces Republican opposition to the structure of the agency, which was created by the landmark Dodd-Frank Act arising from the 2007-2008 financial crisis.
Sen. Mike Crapo of Idaho, the ranking Republican member of the banking committee, said, "I believe that structural changes to the CFPB are essential." He is among Republicans who say the agency needs a board, rather than a single director. "Both the SEC and FDIC have survived nearly 80 years," Crapo said, "and the board structure has provided sufficient transparency and openness so that Congress and the general public have a very good understanding of each agency's mission and operation."
Committee chairman Tim Johnson, D-S.D., called Cordray a strong leader and said Cordray has appeared before the panel more than any other financial regulator since his initial confirmation hearing in September 2011.
That recess appointment
Crapo seized upon a recent court ruling that found presidential recess appointments unconstitutional. That case involved appointments to the National Labor Relations Board. "Since the CFPB recess appointment was made on the same day, the same result should apply," Crapo said.
Sen. Sherrod Brown, D-Ohio, said the Republican opposition to Cordray marked "the first time in history that the minority party pledged to block a nominee simply because it opposed an agency's very existence."
Sen. Elizabeth Warren, the vocal Massachusetts Democrat who just joined the committee, called the opposition to the director structure "a filibuster that's an attempt to weaken the agency."
Regarding the work of the agency since its inception two years ago, Cordray told the committee, "Perhaps the most direct example of addressing problems in the consumer finance markets is our consumer response function. To date, we have already handled more than 130,000 complaints from people in every state around the country."
An easier time for the SEC nominee
Members of the Senate panel stopped short of signaling opposition to confirmation of former federal prosecutor Mary Jo White, nominated to head the Securities and Exchange Commission. Indeed, panel member Sen. Dean Heller, R-Nev., pledged to "aggressively support" her nomination.
White said that among her priorities is beefing up the SEC's enforcement function. She called it "necessary for investor confidence and the integrity of financial markets."
Are big banks immune from punishment?
Answering a question from Sen. Robert Menendez, D-N.J., White said no financial institution "is too big to charge." She noted that the SEC handles civil cases and that potential collateral damage to the economy is not considered when deciding whether to proceed with charges in such cases. She said federal prosecutors, who handle criminal cases, are directed to consider the possible impact on the public and the economy.
Technology and trading
White said she is concerned about so-called high-frequency trading and other little-understood technology employed in the financial markets. She said "we need to know what's happening and what the impacts are." Questions persist, for example about the "flash crash" in May 2010, when the Dow Jones industrial average plunged about 1,000 points before recovering.
Warren questioned why there are still no rules governing credit rating agencies or derivatives "at the heart of the financial crisis." White said that still-emerging rules connected to Dodd-Frank and the Jobs Act "need to get out."
Asked about potential conflicts of interest arising from her work as an attorney, White said that she's gone through vigorous vetting with both the White House and with the SEC's chief ethics official. She pledged that, "if confirmed, the American public will be my client."
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