Regulatory Capture in Action

A blog about business and economics.
July 16 2012 10:25 AM

Regulatory Capture in Action

I'm not particularly troubled by the revelation that a federal bank regulator " 'misused' government resources to solicit prostitutes on three separate occasions via Craigslist,"* but there's plenty of genuine policy-relevant misconduct here:

In another finding, the [Treasury Department's Office of the Inspector General] cited an [Office of the Comptroller of the Currency] staffer for accepting golf fees and meals from bank executives. The staffer, who had received ethics training, said he believed playing golf with industry officials under the purview of OCC was “a condoned activity.”
The golf outings took place on multiple occasions during workweeks when OCC was conducting bank examinations. Many of the greens fees and meals at the golf course were paid for by corporate executives. [...]
OIG found other financial conflicts of interest with the OCC relating to contract bids and the acceptance of improper gifts such as flowers, meals and at least one limousine ride. A separate Treasury official was deemed to have a financial conflict of interest in 2010 when the bank examiner disclosed he had an overdraft protection line of credit loan from a financial institution that was regulated by the OTS.

Regulatory capture is sometimes treated as a somewhat mysterious illness, and in the right circumstances, it can be. But it can also be surprisingly crude, which is exactly what we saw with the regulatory officials who were supposed to be overseeing mining on federal land and here with the bank regulators. But this comes down not just to individual corruption, but to institutional mission and political consensus. We've had corrupt FBI agents in American history, but I don't think we've ever had FBI agents who genuinely believe there's nothing wrong with taking bribes from people who rob banks. There's a firm consensus at the highest levels of American politics and society that we want the FBI to have an adversarial relationship with the people who rob banks, and that filters down through all levels of the agency.

Over the past couple of decades, we haven't had that kind of consensus about the financial services industry, and it shows in this kind of thing. A high level of political culture that wanted banks to be poorly regulated creates a situation in which the question is about what the ethics handbook does and doesn't permit regarding green fees. But once you're in a situation of looking through the rule book for a list of what kinds of favors you're allowed to accept, you've already abandoned the idea of an adversarial, rigorous relationship. And that's not because line workers at OCC decided unilaterally to act that way. 

*Prostitution is illegal, obviously, but "misusing" work computers for nonwork activities is the height of harmlessness. Buying scalped concert tickets on Craigslist would also count as misuse of resources, but if we want to attract competent employees, we need to treat them decently. In general federal workers' use of computers is overmonitored.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


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