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The Fed Becomes the Nation’s Only Bank Regulator
By David Dayen
When the acting head of the Office of the Comptroller of the Currency (OCC) Blake Paulson sent a letter to Senate leaders in April defending the agency’s practice of allowing federally chartered banks to effectively launder consumer loans at any interest rate, enabling evasion of state interest-rate caps, it was seen as a last straw….Certainly, in the run-up to the housing bubble, the Fed was not seen as tough on banks, after longtime chair and Ayn Rand acolyte Alan Greenspan downgraded regulation and supervision in favor of allowing market discipline to govern. Greenspan and his successor Ben Bernanke insisted that the damage from subprime mortgages would not spread to the overall banking system, a serious error. The central bank “missed a great deal of the problems that led up to the 2008 crisis,” said Karen Petrou, co-founder and Managing Partner of Federal Financial Analytics, a banking consultant, and author of Engine of Inequality, a book about the Fed. After the crash, policymakers noted the Fed’s dual mission of protecting the safety and soundness of the banking system and of protecting consumers. These were seen so much at odds that the Consumer Financial Protection Bureau was created to take the consumer protection function out of the Fed, which regarded it as a lesser imperative anyway.