Elizabeth Warren said in a speech yesterday that stepped-up bank regulation she’s helping implement will be good for banks and consumers alike. Warren, Barack Obama’s designated advisor to the development of the new Consumer Financial Protection Bureau, said that many Americans view banks with extreme suspicion, and that increased transparency will remedy banks’ image.
“Thanks to the new law, for the first time ever, we will have a single federal agency charged with writing the rules for all mortgages and all credit cards, regardless of whether they are issued by a federally chartered bank, a state chartered credit union, or a group of unlicensed investors,” she said.
Warren also outlined her general approach to financial regulation. As Reuters’ Felix Salmon points out, she’s interested in outlining principles, rather than hard-and-fast rules, to foster transparent behavior among banks. The distinction is important, Salmon says: “Warren, remember, is a law professor: she knows full well that the main effect of laying down rules is to send a thousand lawyers scurrying to find ways around them. And she’s surely also seen the way in which other regulators – the SEC springs to mind – become overrun by lawyers looking for people breaking rules, rather than regulators trying to ensure a clean and level playing field.”
The idea is that the Protection Bureau can skirt the bureaucratic mess of trying to spot particular instances of wrongdoing and instead work to get banks be more clear about what their products do. The increased clarity would result in a market where consumers can make informed choices about what banks currently offer. A product that’s bad for consumers won’t last long if consumers know it’s bad for them, and products that are mutually beneficial to consumers and banks will prosper.