Commentary Magazine


Topic: Dodd-Frank

The CFPB Pays Itself—and Very Well Too

One of the reasons the compensation of CEOs has been rising so quickly in recent decades—much to the distress of the left—is that very often they get to determine for themselves what their compensation will be. To be sure, it is the board that actually sets the figure, but corporate boards are, all too often, effectively controlled by top management, not the other way around. And even in companies where the boards rule, the fact that other companies are paying their top executives more puts pressure on them to keep pace.

That doesn’t happen in the federal government, where the salaries and perks of the vast bureaucracy are set by act of Congress.

Except, of course, for the Consumer Financial Protection Bureau established by Dodd-Frank. The CFPB is not an agency of the executive branch of the government, but rather a part of the Federal Reserve, although not subject to any oversight by the Fed. Indeed, effectively it is not subject to any oversight at all, an open invitation to abuse its power. As the Founding Fathers understood, those sorts of invitations are always, sooner or later, accepted.

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One of the reasons the compensation of CEOs has been rising so quickly in recent decades—much to the distress of the left—is that very often they get to determine for themselves what their compensation will be. To be sure, it is the board that actually sets the figure, but corporate boards are, all too often, effectively controlled by top management, not the other way around. And even in companies where the boards rule, the fact that other companies are paying their top executives more puts pressure on them to keep pace.

That doesn’t happen in the federal government, where the salaries and perks of the vast bureaucracy are set by act of Congress.

Except, of course, for the Consumer Financial Protection Bureau established by Dodd-Frank. The CFPB is not an agency of the executive branch of the government, but rather a part of the Federal Reserve, although not subject to any oversight by the Fed. Indeed, effectively it is not subject to any oversight at all, an open invitation to abuse its power. As the Founding Fathers understood, those sorts of invitations are always, sooner or later, accepted.

Nor is it funded by congressional appropriation. It simply tells the Federal Reserve how much money it needs and the Fed sends over a check.

And its employees’ compensation is not determined by congressional act. It is set by the CFPB.

So guess what. Just as with many CEOs, it pays its employees very well indeed. According to the Washington Examiner, there are no fewer than 56 CFPB employees who earn more than the $199,700 salary earned by Fed Chairman Ben Bernanke.  The average salary at the CFPB is $118,000, and fully 61 percent of the employees earn more than $100,000. The Examiner reports that, “The top grossing CFPB employee is Gail K. Hillebrand who receives $251,288. She is assistant director for consumer education and engagement. Previously, Hillebrand was a marketing manager at Consumers Union.”

The top-paid bureaucrats in the executive branch—GS-15, step 10—who are based in Washington earn $155,500 in salary.

The Nancy Pelosi 111th Congress abandoned its most potent constitutional powers, the power of the purse and the power of oversight, in creating this constitutional outrage. We’ll probably have to wait until at least 2017 to undo it.

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Too Many Too-Big-to-Fail Banks

I was at a banking conference in Dallas over the weekend, and among the speakers was Harvey Rosenblum, the vice president and director of research at the Dallas Federal Reserve Bank. Dr. Rosenblum’s topic was too-big-to-fail banks and the Dodd-Frank legislation that is supposed to cure the problem.

There are currently 5,582 banks in the United States. That is a very great many by the standards of the rest of the world, but it’s way down from the peak number of banks, which was over 30,000 in 1920. But the total number doesn’t begin to tell the whole story. Of the total, 5,500 banks are so-called community banks, with banking assets of under $10 billion. Then there are 70 mid-size banks, with assets of between $10 billion and $250 billion. Finally, there are 12 megabanks with assets between $250 billion and $2.3 trillion.

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I was at a banking conference in Dallas over the weekend, and among the speakers was Harvey Rosenblum, the vice president and director of research at the Dallas Federal Reserve Bank. Dr. Rosenblum’s topic was too-big-to-fail banks and the Dodd-Frank legislation that is supposed to cure the problem.

There are currently 5,582 banks in the United States. That is a very great many by the standards of the rest of the world, but it’s way down from the peak number of banks, which was over 30,000 in 1920. But the total number doesn’t begin to tell the whole story. Of the total, 5,500 banks are so-called community banks, with banking assets of under $10 billion. Then there are 70 mid-size banks, with assets of between $10 billion and $250 billion. Finally, there are 12 megabanks with assets between $250 billion and $2.3 trillion.

What’s scary is that the community banks, 98.5 percent of all American banks, have only 12 percent of the banking assets. But the megabanks, only .21 percent of all banks, have 69 percent of all banking assets.

These are the too-big-to-fail banks. Their failure would ripple throughout the economy and could well cause a financial contagion that would be hard to stop. And Dodd-Frank doesn’t do a thing to solve that problem. Dodd-Frank is 893 pages of legislation and, so far, 9,000 pages of regulation (with 2/3 of regulations yet to come). Regulations, of course, don’t stop bank failure. They don’t stop the moral hazard created by a bank being too big to fail. They don’t stop the competitive advantage that being too big to fail gives the megabanks, with other institutions willing to lend to them at lower rates, knowing that the government will have no choice but to rescue them from failure.

What massive new regulation does do is give the megabanks yet another advantage because they can absorb the costs of new regulation much better than the small community banks. That, of course, is why the megabanks didn’t lobby against Dodd-Frank. So this is classic crony capitalism, Washington and the big guys ganging up on the small guys in the name of protecting the people.

It also almost guarantees another banking crisis in the future.

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