Schapiro's S.E.C.: Too Big to Succeed?

As The Observer‘s Maureen Tkacik noted two weeks ago, Mary Schapiro, chairman of the Securities and Exchange Commission, is a popular figure in Washington. She wins high marks for her integrity, hard work and decency–qualities that often are in short supply in public life.

And yet, for all the affection, Ms. Schapiro finds herself in the firing line as she attempts to restore her credibility in light of her close friendship and connections with Bernie Madoff and members of his family. Ms. Schapiro’s general counsel, David Becker, recently resigned after the trustee in the Madoff case sued him to recoup the $2 million he and his brothers made when they liquidated their mother’s account with Mr. Madoff.

Critics have questioned Ms. Schapiro’s competence as the S.E.C. attempts to come to terms with the sweeping new regulations contained in the Dodd-Frank financial reform bill. The S.E.C. will have the power to regulate the derivatives market beginning this summer, although Ms. Schapiro has asked for an extension even as opponents of Dodd-Frank seek to gut the regulations.

The issue here may not be personal, but institutional. The S.E.C., founded in reaction to the irrational exuberance of the 1920s, may have become too big to succeed. Its new oversight responsibilities may paralyze rather than re-energize an already unwieldy agency whose sense of purpose has eroded over time.

Sensing an opportunity to gut the agency, Republicans in the House of Representatives are trying to starve the S.E.C. so that it will be unable to enforce the Dodd-Frank regulations. That would be a step backward. The White House and Ms. Schapiro need to rethink the regulatory model without simply scrapping the very idea of regulation, which is what many Republicans would prefer.

The S.E.C. needs to become more nimble and accountable. That requires strong leadership. The question is whether the popular, likable Ms. Schapiro can provide it.