Today Treasury Secretary Jack Lew delivered a broad policy address to an audience at the Pew Charitable Trust. For the most part, Lew spoke about progress the Treasury and Administration have made thus far ending too-big-to-fail and reigning in many of the perceived excesses of Wall Street firms. The truly interesting part of Lew’s address, however, was when he took Congress for to task for passing Dodd-Frank but then failing to properly fund the agencies and departments charged with enforcing the law. Absent real funding, he said, “the best rules will fall short without effective supervision and enforcement.” Secretary Lew did not restrict his comments to Congress in general. Rather, he blamed quite plainly those in Congress working to roll back the Dodd-Frank reforms, and having failed at that, seek to hamper its implementation by starving regulators.
An essential part of meeting that test will be to make sure regulators have the resources necessary to police markets and financial institutions effectively. Even with the best rules, illegal behavior or excessive risk taking will go unchecked unless regulators have the resources to conduct regular examinations, monitor suspect behavior, and go after those who break the law. The point is, this is not an either/or proposition. The best rules will fall short without effective supervision and enforcement. And effective supervision and enforcement are only possible with sufficient resources.
After failing in efforts to block or rollback reforms, some in Congress would now simply starve the regulatory agencies of funding so they lack the resources to do their job. Failing to fund supervision and enforcement of the new rules amounts to virtual deregulation. And it puts Americans at risk that financial threats will go unchecked.
Jack Lew is known to be a forthright and practical man. And this speech demonstrates that he is not shy about putting Congress on notice of the dire consequences that certain members’ political games may have on the nation’s financial health.