we President Joe Biden’s selection of Saule Omaroza as the head of the Office of the Comptroller of the Currency (OCC), which largely controls federal financial institutions in the United States, could mean a radical transformation of the country’s banking system. This should be of interest to executives and bankers around the world.
Omaroza’s stated and published positions on currency manipulation, cryptocurrencies and outright gambling by major financial institutions make his appointment a hit with Democrats and a threat to Republicans. She is a staunch opponent of the virtually unfettered freedom of these institutions, which is why her appointment has implications for the well-being of investors and consumers around the world.
The OCC is an independent federal body, which oversees all national banks and other savings institutions. It is responsible for ensuring that these institutions obey the law and comply with rules and regulations designed to protect their clients.
The OCC, however, is not part of the Federal Reserve (the “Fed”), which regulates other institutions, such as state banks. It is financed by fees paid by the financial operators it supervises.
Omaroza, a Cornell University law professor, is a harsh critic of Wall Street and major financial institutions. Having said that she would like to “change the bank as we know it”, she believes that the application of laws and regulations applied to these institutions has been uneven and inefficient.
A prime example of Omaroza’s lightning rod proposals is that consumer banking services be consolidated under the Fed. Currently, the regulator of financial institutions is dispersed among several agencies, the Fed being only one of them. But the public, and even many elected officials, are understandably confused by the distribution of power exercised by various agencies, including the Fed and OCC. And that’s a big part of the problem facing those looking to reform the country’s financial system.
Besides the issue of jurisdictional authority, Omaroza is a vocal critic of cryptocurrencies, which she says has allowed what she calls the nation’s “dysfunctional financial system” to continue.
She argues, as many analysts do, that the advent of cryptocurrencies has destabilized the economy and allowed private companies to abuse the system. Indeed, the threat posed there reminds many of the situation before the financial catastrophe, the so-called “Great Recession,” which devastated the economy and wreaked havoc on the American workforce. And that’s why many critics of the status quo favor someone, anyone, who promises to shake up America’s fractured financial system.
It’s important to remember that in the early years of this century very few analysts predicted the Great Recession. The 2007-2008 financial crisis, which saw the net worth of the average American household fall by 26%, resulted in a decline in the national gross domestic product of 7% and job losses totaling more than seven million.
Before the crisis, financial institutions were largely free to operate as they wished, which led many to speculate extensively. This speculation included leverage – i.e. gambling – by many of them, to the point where even a modest drop in real estate and other valuations could, and did, lead to institutional insolvency. .
“Leverage” is a measure of the ratio of assets to equity. For example, the first and most infamous investment firm to collapse, Lehman Brothers, was indebted to an astonishing level of over thirty to one, meaning that its assets were only about 3% of its assets.
The institution‘s 2008 bankruptcy filing, the largest in history, represented the bankruptcy of a financial giant with assets of US $ 639 billion (RM 2.67 trillion). Many observers believe that Omaroza’s appointment could reduce the danger of another financial collapse. But already the appointment of Biden has aroused the fury of the bankers and their defenders in the Senate, which will decide the fate of Omaroza.
Omaroza’s agenda goes beyond the simple monitoring of speculative institutions. For example, it promotes the transfer of consumer deposits to digital dollar accounts at the Federal Reserve, which would significantly change, through centralization, banking supervision.
She argues that such a decision would be “a model for radically reshaping the basic architecture and dynamics of modern finance.” And she didn’t just say it in an obscure speech, she included it in her written academic work. Additionally, Omaroza asked, in tweets, “Does the world need JP Morgan to get bigger and more powerful?”
She has officially criticized the awarding of large dividends and share buybacks by the largest banks – an extremely rare position among those considered for high-level government positions involving financial regulation.
Omaroza is not a friend of Wall Street or the mega-banks – and she’s not afraid to voice her opinions publicly. The fight for this nomination to the OCC will be followed by very few people. Media coverage of such an appointment does not have the media value of a withdrawal from Afghanistan or a multibillion-dollar spending program.
Part of the reason is that the complexities of modern finance, especially those involving the operations of financial institutions and their (often opaque) holdings, challenge the easy comprehension of consumers or managers.
But this fight may in fact come across as very substantial, as the future of banking and finance in the United States and around the world may be at stake.
Those at opposite ends of the political spectrum will continue to disagree on many issues concerning money, banking and the economy, but we hope they can agree on the need for some basic reforms, in particular the simplicity of government control, either through the consolidation of agencies, or through the rationalization of the competence of the agencies and the transparency of the reports of private banks and other financial institutions.
Omaroza’s positions may turn out to be too radical or unrealistic to implement. But his appointment could be the catalyst for a stronger and more intense public and government interest in the affairs and operations of domestic financial institutions in the United States. And that alone could avert another financial crisis, something that could, once again, disrupt the national economy and wreak havoc in markets around the world.
The writer, professor at HELP University, is the co-author of Saving the Savings and Loan: The US Thrift Industry and the Texas Experience, 1950-1988, by Praeger Publishers.
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