Inside the FDIC

Chapter 13

Going Forward

Why has it been so hard to achieve a safe, stable, and fair financial system? Part of the answer is in the complexity of the issues. The almost universal focus on sound bites can't do the issues justice, and even capable, well-intended people can promote misguided policies.

The political and financial system is also focused on short-term, rather than long-term, objectives. This makes it more difficult to implement rules strong enough to prevent crises. Even when such rules are implemented, for example, in the aftermath of a crisis, they are difficult to retain over time as memories fade, the pendulum swings, and short-term considerations once again take precedence.

Greater attention should be focused on three areas: (1) ensuring that financial market regulators are independent from the political process, (2) maintaining effective checks and balances in our regulatory system, and (3) recognizing the historical knowledge and perspective of the career staff.

Independence

Why is independence so important? The political process results in pressure by groups that seek preference for their special interests over the broader public interest. Independent agencies—those not part of the executive branch, not subject to congressional appropriations, and not controlled by the industry they regulate—can better insulate themselves from that pressure. I've shown examples throughout this book of how political pressures have impacted financial regulatory policy and ...