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What Qualifies an Investment Banker to be a Regulator?

posted by Adam Levitin

As the Antonio Weiss nomination contest heats up, I'd like to pose a question that seems to be taken for granted by Weiss's supporters, namely that he's obviously qualified for the job.  As far as I can tell, Weiss's chief qualifications are that (1) he's an investment banker and (2) he's a major Obama donor, who (3) professes Progressive sympathies. (It's awesome that he bankrolls the Paris Review, but surely that's not what qualifies him.)  

Weiss isn't Obama's only donor, and his Progressive bona fides seem to consist of co-authoring a Center for American Progress piece in favor of progressive (small p) taxation.  So really the case for Weiss's qualification comes down the the fact that he's an investment banker. His investment banking experience appears to be in mergers and acquisitions, and at an investment bank that does not have a depository.  Why on earth does that qualify him to be the Undersecretary for Domestic Finance?  

The UDF is a position in charge of (1) Treasury's regulation and oversight of domestic financial institutions, including consumer policy, (2) Treasury's oversight and management of US government debt, (3) Treasury's financial stability oversight role, and (4) the government's actual fiscal services.  Almost none of that relates to the work of an investment banker doing international M&A.  A lot of this is regulatory policy work--not part of the i-banking resume.  Indeed, most of the regulatory policy is commercial banking regulatory policy, something which isn't part of the experience of an investment banker at Lazard, a ibank too small to be a SIFI and thus not really in the financial stability mix.  Some of the UDP's work relates to government debt issuance, something that would seem to relate to experience at a bond desk rather than doing deals.  And some of the UDP's portfolio is just cash management services. Again not part of the i-banking job.  

The shock of Mr. Weiss's supporters that anyone would dare question his suitability reflects an unspoken assumption that anyone from Wall Street is of course expert in all things financial.  That's hooey. The finance world is vast and varied.  I would not assume as good bond trader would be a good i-banker or a good consumer credit underwriter.  And the regulatory side of it is particularly different from the deals side. I don't see any reason to assume that a good deal-maker makes a good regulator. It's a different skill and knowledge set. By the same token, I would not assume that a good regulator would make a good i-banker. (That's not to say that one cannot be both, just that one background is not necessarily qualifying for the other.)  

The assumption that a successful i-banker will be a good regulator is just another version of the fallacy that wealth equals intellect.  It's this sort of deferrence to Wall Street (and I'm looking at you Andrew Ross Sorkin) as infalliable about anything relating to money that got us into the 2008 mess in the first place.  


Two thoughts after reading this. I hadn't heard of Mr. Weiss's nomination and have no opinion about it one way or the other.

First, having said that Mr. Weiss's experience doesn't qualify him for the job, what experience should a treasury undersecretary have?

Second, this is a political appointment. I think I could take over half of the appointees of any president, all the way back to George Washington and write the equivalent essay. While there have been failed political appointees, some of the best political appointees (as judged by history) could have easily been labeled unqualified for the job. Earl Warren as Chief Justice of the Supreme Court comes to mind.

I would think some prior experience with regulatory policy or with Treasury bonds or even FX markets would be more relevant. A GC at a large bank or a top bank regulation lawyer or the head of a bond desk or, heaven forbid, an academic who works on bank regulation ala Dan Tarullo would be better fits.

Yes, it's a political appointment, but we still expect basic qualification even for political appointees in more technical deputy positions. You wouldn't appoint me or a veterinarian as Surgeon a General, for example, or a non-attorney as an AAG.

A Veterinarian would be a more logical choice for Surgeon General, than Weiss's experience is to the under secretary position. Vets do have public health responsibilities, which is the job description for SG.

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