Are Regulators Too Cozy with the Financial Industry?


Recent ethics allegations ask, “who watches the watchmen?” Also by ‘watchmen’ we mean financial regulators, not Alan Moore’s graphic novel. Just sayin’.



For many years there have been allegations against regulators claiming that they are too cozy with financial institutions. It was always discussed in terms of speculation, but a complaint from a government watch dog group may bring potential ethics violations to light.


Politico reported last week that the Office of Special Council – the office that handles claims of government whistle blowers – is preparing a letter that would be sent to the Treasury Department detailing allegations that happened within the Office of the Comptroller of the Currency (OCC) in regards to regulating the banking industry. The letter details that the OCC had ignored rules which prohibit regulators from writing regulations or creating policy that they themselves have investments in. This is a major issue considering that the OCC oversees some of the largest banks in the world!


The allegations by the anonymous whistle blower date back to 2012 when a rather embarrassing ethics violation made headlines with a high-ranking OCC regulator owning over $25,000 in Bank of America securities. After the incident many had treated it as a dumb oversight by the OCC and the agency promised it would be fixed. These new allegations however state that the 2012 incident wasn’t the only ethics violation at the OCC. It proposes that around 60 to 100 employees had knowingly broken these rules at one point of time or another. While the letter doesn’t necessarily state that the individuals at the OCC did this for personal financial gain, it does underscore the lax practices of enforcing rules within regulatory agencies.


Over the last couple of years, the question of the Treasury Department and financial institutions being too close have come up from time to time. The question surfaces when former financial executives accept high-ranking positions within the Treasury Department, like former Secretary of Treasury Henry Paulson who was CEO of Goldman Sachs before accepting the post. Many within these institutions hark on that you need someone with deep knowledge of the industry to be an effective regulator, hence why regulators tend to be industry insiders.


While the Office of Special Council doesn’t have the power to investigate whistle blower claims – only agency heads can investigate any wrong doing within their departments – it does bring those tenuous relationships to light. Which is always an import discussion to have.


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