Sheila Bair, Not Jamie Dimon, Should Succede Janet Yellen As Treasury Secretary

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Rumors are rife that President Biden is considering Jamie Dimon as Janet Yellen’s successor at the Treasury. In general one might think of the present – with the ship of the finance founder – an inappropriate moment to talk about changing helmsmen midstream. But it’s actually a good moment — a reassuring moment — to have this kind of conversation if we turn to a better candidate for the current crisis: former FDIC Chair Sheila Barr.

The crisis we currently face is the product of three decades of concentration on Wall Street and the financialization of banking. Since the 1990s, we have seen a rapid reduction in the number of banks across the country, an alarming increase in the size of the remaining banks, and a shift in the focus of lending from production to speculation. This coincides, if anything, but erroneously, with the destructive globalization, financialization, and de-industrialization of the national economy.

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In related work I describe the details of these developments, and the role played by critical legal change Work was done to enable this in the 1990s. Here, however, I want to briefly note the importance of current developments in the banking sector – and why these, along with the historical trajectory they represent, argue for Ms. Baer over Mr. Dimon as our next Treasury Secretary. Are.

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The collapse of Silicon Valley Bank last week, and continued bank failures and volatility in bank stocks this week, all stem from a sad state of affairs that has now reached our banking system. And it is a pass that is still ignored by all but the currently familiar – if not now tiresome – discussion of Dodd-Frank and partial ‘rollbacks’ back in 2018.

what is svb
The failure shows us how hard it is now to be a sector-specific, production-focused, non-Big-5 regional bank, rather than a generic, one-size-fits-all, TBTF Wall Street bank. Federal Deposit Insurance (FDI), despite modernization in 2005 to impose a quantitatively sensitive, risk-value premium on all insured banks, continues to impose a $250 cap on FDI coverage.

It is insufficiently widely appreciated how precariously this regime places non-Wall-Street megabanks.

Namely, sector-specific, production-focused, locally accountable regional banks such as the SVB.

Production-oriented industrial banks serving customers of the SVB type with large payrolls and daily operating costs dwarf the $250K transaction accounts, with FDI coverage now limited. This certainly means that productive firms face a tragically unnecessary tradeoff. They can take advantage of the sector-specificity, producer-focus and regional sensitivity offered by SVBs, but only at the cost of giving up deposit insurance.

Of course, the current alternative to these firms is the safety of the big Wall Street TBTF banks, which are inherently more diversified and no one would doubt be in trouble in the event of a crisis. But this of course comes at its cost – namely, financial speculation with the institution being more interested in global financial markets than in banking and industrial production, not to mention insensitivity to specific sectors, regions and localities.

This situation is counterproductive to the immediate project of reindustrializing and redefining our country, as I have been consistently arguing since the failure of the SVB. That’s why I draft law Now under consideration in Congress, to Raise all FDI caps on bank deposits while retaining the risk-value premiumprogressively, as required by law since 2005.

But these same ideas also scream for a successor to Secretary Yellen who is herself regional and production-oriented, not to mention a celebrated former chair of the FDIC. I definitely refer to Ms. Baer. There may be no better time to nominate him to the Treasury than at present, when it is imperative to boost the FDIC’s role compared to the Fed’s and when one is more attentive to real banks, as distinct from financial conglomerates. . A la Dimon is essential.

sheila barr Was famous for leading up to and after the 2008 crash as the only regulator other than the CFTC Birth of Brooksley Have ‘seen it coming’ and warned us accordingly. (Both were snubbed by the ‘bro’ regulators she had to work with.) A Republican from Kansas, she was markedly more presentable and serious than Democrat Tim Geithner, who then chaired the New York Fed. was, to warn and try to avert the distress gathered, then broke down.

Ms. Barr was so famous at this time that President-elect Obama shortlisted him with Geithner deciding on his first Treasury Secretary. Unfortunately, Mr. Obama chose Geithner over Bayer — not to mention Larry Summers over Joe Stiglitz as his chief economic advisor – in a terrible blunder with the consequences of which we are still living.

President Biden is widely called Determined to do better than his former boss President Obama, and to avoid the mistakes he made during his Vice Presidency. I submit that there may be no better way to undo the mistakes and recapture the then-lost opportunities of the Obama Administration than to offer the Treasury Secretaryship to Ms. Baer when Ms. Yellen retires.

As the trustee of the Federal Deposit Insurance Fund, the FDIC has always been a more serious regulator than the Fed, which was never intended to be a regulator and has too many other important tasks to be expected to do well in regulatory work. That’s why the FDIC, not the Fed, administers the most powerful of our bank-regulatory tools — capital regulation — and it also has a broader regulatory jurisdiction than the Fed — all insured banks, not just Fed member-banks. .

Ms. Baer, ​​the most serious modern chair of this most serious of bank regulators, is accordingly a Treasury leader whose time has come again. As a Republican, moreover, she would earn the president bipartisan ‘brownie points’ while also maintaining the gender diversity at the Treasury that Biden laudably gave us when he nominated Ms Yellen two years ago. Was.

So there you have it, Mr. President. I, a New York Democrat who served at the New York Fed and the International Monetary Fund, urge you to choose Sheila Barr, a Kansas Republican former FDIC chair, not New York Democrat megabanker Jamie Dimon, to be your next Treasury Secretary. You – and the nation’s small bankers and real producers – will be very glad you did.

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