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Rodgin Cohen: Pay No Attention to That Man Behind the Curtain

posted by Adam Levitin

The Wall Street Journal ran a story today about H. Rodgin Cohen, the Senior Chairman of Sullivan & Cromwell and "one of Wall Street's top lawyers" decrying "the myth of regulatory capture." All I can say is wow. That's some chutzpah. 

For Rodgin Cohen to downplay regulatory capture is a like the scene in the Wizard of Oz when the Wizard says, "Pay no attention to that man behind the curtain." It's hard to think of an individual more at the center of the regulatory capture phenomenon than Rodgin Cohen.  Cohen plays a particular and unique role in the regulatory capture problem. Cohen is not just "one of Wall Street's top laywers". He is the top bank lawyer. He's a node through which all sorts of connections happen. Cohen is the eminece grise of financial services law and is an institution unto himself. Think of him as a sort of super-consiglieri or Mr. Wolf. There's no one who quite plays the role of Cohen in the world of financial regulation, and he's rightly greatly respected. 

I don't think of Cohen as an anti-regulatory ideologue (heck, regulation is how he earns a living), but he is deeply implicated in the regulatory capture problem because his strong suit is mediating between financial institutions and regulators. His job is to convinece regulators that they are on the same team as the banks and to get issues resolved quietly and out of the spotlight. Cohen, for example, was a drafter of the little noticed 1991 amendment to section 13(3) of the Federal Reserve Act that enabled the Fed to bailout non-banks like AIG and Goldman Sachs. Cohen's skill in persuading regulators to advance the financial services' industry's agenda is part of why Cohen is so respected and valued. But it also means that for him to admit that there's a capture problem of any sort would be to admit that financial institutions and regulators do not have aligned interests and to recognize that he's an advocate for financial institution clients, whose interests are not those of the public. And that would undercut the very sort of cozy relationship between banks and regulators that he aims to foster. Cohen's success is based in part on capture, so he's the last person who'd want it to go away. 

I would note that Cohen's comments about capture seem focused on individual bank examiners. That's misdirection. The examiners are really not where the capture problem lies. It hasn't been the front line-level examination staff (does Cohen himself really still deal with individual examiners?), but the upper level of the financial regulatory bureaucracy, both political appointees and civil service, where the capture problem has been the most severe. 

Indeed, the NYFed whisteblower regarding Goldman Sachs was an examiner who was overruled by the upper echelons of the NYFed. The OTS was known to have a very good examiner staff. It wasn't the examiners, but was an upper manager who cut the infamous deal to let Countrywide pick its own appraisers in exchange for switching to an OTS charter. Likewise, The Senate Permanent Subcommittee on Oversight's report on Wall Street's role in the financial crisis (2011) included a part on the failure of WaMu.  The report on WaMu documented that some of the OTS examiners at WaMu wanted to take tough action but were blocked by their supervisors within OTS. During the 2000s, the bete noir of consumer protection was the general counsel at the OCC. And at the Fed, there are still some Greenspanian holdovers, like the Fed's general counsel.  

Rodgin Cohen is one of the most knowledgeable people around regarding bank regulation. He's someone whose opinions should be taken seriously. But he's not a credible person to downplay the problem of regulatory capture. 



I'm shocked, SHOCKED, to find self-serving crap slinging going on here.

Cohen was, of course, Obama's first choice to be Deputy Treasury Secretary under Tim Geithner. Tells you how deeply the Obama team were committed to Change You Can Believe In.

The fact that Scott Alvarez still holds his post should tell you all you need to know about the administration's commitment to actually fixing this mess.

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