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The Senate Banking Committee is holding a hearing tomorrow on the nomination of Saule Omarova to be the Comptroller of the Currency of the United States. Omarova is an obviously bright law professor who teaches at Cornell Law School and hails from the former Soviet Union. Having never worked in a bank or as a bank supervisor, her academic work is her main qualification for the job. Her other bank related work consists only of a stint at the law firm Davis Polk & Wardell's financial institutions unit and as a special advisor in the Bush Treasury Department.
Surprisingly, however, it is not her lack of banking or regulatory experience that are the biggest things marking her as a terrible pick for the position. In a kind of self-jujitsu, her nomination is under threat from her strength rather than her weaknesses. Her academic papers mark her as someone on the far-left fringe with ideas completely inappropriate for the head of the 4,000 person regulatory agency whose duties include chartering, regulating, and supervising all national banks and federal savings associations as well as federal branches and agencies of foreign banks in the United States.
The main evidence against her is a law review article she published this year. In it, Omarova argues that all bank deposits should forcibly be transferred to FedAccounts at the Federal Reserve. This would, of course, instantly wipe out nearly all American banks. Community banks, which are most dependent on deposit funding, would be vaporized. Wall Street's biggest firms, which can turn to the global bond market for funding, would simply dissolve their bank arms and return to their origins as trading, private equity, and investment banking houses. As one banker remarked, it would no longer be necessary for the IRS to get those reports on bank transactions because the government would already have them.
Even more importantly, the Fed would be transformed into the main source of credit in the United States. Banks without deposits would quit making loans to businesses and home buyers. Your mortgage would be a Fed mortgage. Your small business loan would be a Fed loan. And, in Omarova's formulation, the Fed would make credit decisions not just based on balancing the risks of profits and losses but on whether bureaucrats decided the loans served a "public purpose." That's just leftist law professor speak for government control of the means of credit production. "Public purpose" means doing what the regulators want.
In practice, that would mean starving businesses unliked by the left of access to loans whenever a Democrat held the White House. Fossil fuel companies, gun makers, and right-of-center websites would likely be shunned as not serving the public purpose and undeserving of credit. All other businesses would be forced to conform to the agenda of the left or risk being found lacking when it comes to public purpose compliance.
Omarova claims this would reduce "systemic risk." In reality, it would do no such thing. In fact, it increases systemic risk. Instead of thousands of banks independently making business decisions about who and how to provide credit, there would be only one centralized financier in the economy. As a result, any mistakes about what risks to take would become universal errors spread throughout the economy. Think 2008, but everything fails all at once because there's just one big bank run by government bureaucrats.
There's no sense fretting about whether or not this would risk politicizing banking. It definitely would politicize banking. In fact, it would immediately compromise the independence of the Fed because the political branches of government would not be content to let command and control of the economy be dominated by Fed presidents.
Omarova's allies say that these were just academic papers, a weird defense of someone whose main qualification for the job is her academic credentials. If she had written papers advocating for the end of air travel, no one would put her in charge of the Federal Aviation Administration. Ideas have consequences, and the goals of people nominated to the highest positions of power matter very much. Omarova's ideas are toxic, too alien to our system, and too far out of the mainstream for her to deserve confirmation. Let's hope some of the senators on the Democratic side of the aisle realize this before it is too late.
– Alex Marlow & John Carney
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