Hardly a week passes without Congress hearing from at least one financial regulator. This week, SEC chief Gary Gensler will again enunciate the agency’s work plan. This time in front of the House Financial Services Committee. Gensler has quickly moved to the forefront of questions about digital currency and decentralized finance regulation. Confirmation last week that the President’s Working Group on Financial Markets this month will propose rules to structure stablecoin plans and operations marks the public advent of what likely will be a multi-quarter rulemaking.
The news last week was the first official public statement on this topic since its assessment late last December. We agree with long-running consensus that Treasury and Federal Reserve rules are coming and will disrupt Gensler’s oft-referenced view of it as the Wild West. With so much at stake, including early hints at central bank digital currency, it’s likely the President’s Working Group on Financial Markets proposal will mark the beginning of what eventually will be a global supervisory effort.
Reports of another data trove released showing former and current Fed officials owning hard assets in excess of the value of their public salaries or known personal wealth would justify reminds how easily trust can be sullied. The Federal Reserve System last week released information about Vice Chairman Richard Clarida’s personal finances. System officials assert nothing unusual about the timing or substance of Clarida’s 1Q20 executed trades. It’s difficult to imagine the Fed and the White House, to differing degrees, will not be devoting more energy than planned in January to ring-fencing any political contagion.
The so-called Pandora Papers don’t shock as much as they further whet some members’ congressional oversight appetite. The Fed’s independence is rarely jostled as during times of perceived or real institutional scandal. The freshness of two Fed bank presidents’ resignations concurrent with speculation about Chairman Jerome Powell’s future and related possible responsibility changes create an uncommon oversight intensity. Facts and President Biden’s risk tolerance are chief determinants of duration of this specific intense moment.
If all serving Fed governors and bank presidents are and have been within compliance during their tenures, we see little tangible risk to Powell being re-nominated and others on the Board moving into new roles. Should that not be the case, opponents of Fed leaders and their policies will pressure changes not only at the Fed but possibly to fiscal policy negotiations, or other matters pending before Congress. That is how legislative leverage works.
The Clarida, Rosengren and Kaplan headlines quite possibly do not reflect demonstrable facts. But the bank presidents’ departure, the vice chair’s 2020 trading internal examination and very likely congressional hearings complicate White House Fed personnel strategies. “Complicate” does not necessarily mean change but President Biden’s team is not looking for more weight added to the public’s perception of Biden’s handling of his job. Exogenous developments just now requiring more administration resources to resolve is not what White House advisors need or want
