WASHINGTON — A new name that has recently surfaced as the supposed front-runner for President Trump's nomination as the first Federal Reserve vice chairman of supervision is sending the signal that the new administration intends to take a measured approach to financial regulation.
Reuters reported on the eve of President Trump’s inauguration that GE Energy Financial Services CEO David Nason was being vetted for the coveted role at the Fed that would oversee the central bank’s bank regulatory activities.
Nason, who joined GE Capital in 2010 and has served as the head of the financial services unit since 2013, has a lengthy pedigree in government service, having served as counsel in the Securities and Exchange Commission and later as assistant Treasury secretary for financial institutions during the financial crisis.
“It’s a signal that [Trump is] choosing someone who seriously considers the role of regulation and the role of the financial system and the economy,” said Phil Swagel, who served as Treasury assistant secretary for economic policy at the same time as Nason. "He thinks carefully about the balance between … safety, innovation and growth. David found his spot carefully about these issues, and that’s why I think he’d be great for the job.”
Nason’s role during the financial crisis is amply documented in former Treasury Secretary Hank Paulson’s memoir, “On the Brink.” In it, Nason is repeatedly mentioned as being a member of the Treasury chief's inner circle during the crisis, particularly with respect to extending government support to Fannie Mae and Freddie Mac and money market mutual funds. Paulson credited Nason and Steve Shafran — Paulson’s senior adviser — with “extraordinary improvisation” for developing the idea to guarantee money market mutual funds in the midst of the crisis.
Ian Katz, director of the financial research firm Capital Alpha Partners, said in a research note that Nason’s role during the crisis is critical to understanding what his approach would be toward regulation – based not on airy ideals of how things ought to be, but on the hard experience of what can happen when the best-laid plans go wrong.
“For folks who were on the front lines at Treasury and the Fed during the crisis, it was all about survival and pragmatism. Ideology took a way-back seat,” Katz said. “The crisis is seared into their memories. They know the stakes of the decisions they make. So for anyone concerned about whether there’s sufficient adult supervision in Trumpworld, Nason definitely isn’t one to worry about.”
Nason was also a chief architect of a 2008 Treasury white paper outlining a set of sweeping changes to streamline and simplify the U.S. financial regulatory structure. Called the Blueprint for a Modernized Financial Regulatory Structure — known alternatively as the Paulson plan or the Paulson blueprint — the paper outlined broad changes to the financial system in the name of making the U.S. more competitive with other countries.
The plan’s unfortunate timing — it was released just as Bear Stearns was imploding — doomed its chances of ever being pursued seriously. But many of the recommendations laid out in the plan proved prescient.
The plan called for a unified prudential banking regulator, a merging of the Commodity Futures Trading Commission and Securities and Exchange Commission into a single market regulator, and a business conduct regulator not unlike the Consumer Financial Protection Bureau. The plan would also have allowed insurance companies to opt in to a national insurance charter and be overseen by a new department within the Treasury.
The blueprint also called for the President's Working Group on Financial Markets to expand its focus to "include the entire financial sector, not just financial markets" and to build interagency communication to emphasize "mitigating systemic risk to the financial system, enhancing financial market integrity, promoting consumer and investor protection and supporting capital markets efficiency and competitiveness." Dodd-Frank later created the Financial Stability Oversight Council to coordinate interagency responses to systemic risk.
Aaron Klein, policy director of the Center on Regulation and Markets at the Brookings Institution, said that unlike most ideas hatched before the financial crisis, the plan has actually aged quite well.
"The blueprint envisioned things like a market conduct regulator, which is essentially a forerunner to the CFPB," Klein said. "It combines the SEC and CFTC, it had a federal insurance regulator — it kind of went out on a limb and took some brave positions that I think are substantively correct."
Swagel said that Nason was the primary point person on the blueprint and that the nature of the plan demonstrates that he is willing to put forward bold proposals even if they might politically unpopular.
"That was his — he was the driving force behind the blueprint," Swagel said. "That's an indication that he's a big-picture thinker. He knows the details — and he's very effective."