A few weeks ago I wondered how FDIC chairman Sheila Bair managed to retain/grab so much authority for her agency amid Obama's regulatory overhaul despite the fact that so many of her fellow regulators and senior members of Obama's economic team seemed to dislike her:
The item was based on early reports about the administration's then-unreleased proposal--particularly the part about "resolution authority," which it looked like the FDIC was largely going to get. The Wall Street Journal ran a typical account here:
The goal is to avoid repeating a situation akin to the collapse of Lehman Brothers Holdings Inc., where the government had no authority to smoothly unwind the failing institution. A step such as this is expected to be exercised only rarely, and it could first require approval by the Treasury Department, Federal Reserve, and FDIC, people familiar with the process said. Once a company is placed into receivership, the process will likely be run by the FDIC.
Granted, even then, it sounded like Bair was going to have to huddle with Treasury and the Fed when deciding whether to seize a big financial institution. But it also sounded like she was going to be running the receivership process, which seemed to be a big deal. (After all, winding down a company frequently involves selling it off in bits in pieces, making decisions about the fate of management, etc.)
Anyway, all of that is a long-winded way of saying I don't think this was right. According to Ryan Lizza's new piece in The New Yorker, Bair will find herself as the odd regulator out if the Obama proposal is enacted as-is:
[W]hile the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June—when Bair’s aggressive ideas about how to handle Citigroup leaked to the press—Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick. The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”
When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.
Interesting. I guess the moral of the story is that if one interpretation of an event looks like it defies basic logic, then it's probably the wrong interpretation.
P.S. You should also check out Clay Risen's worthwhile Bair profile in TNR here.
--Noam Scheiber