Exclusive conferences prove regulators are still too cozy with banks

Next week, many of the United States' top bankers, their lawyers, and lobbyists will convene at New York's swanky Pierre Hotel for The Clearing House and Bank Policy Institute's annual conference.

With them will be Federal Reserve Vice Chair Lael Brainard, acting Comptroller of the Currency Michael Hsu, Deputy Treasury Secretary Wally Adeyemo and at least 16 other federal government officials who are scheduled to speak at the conference.

Al Drago/Bloomberg

These officials' appearances at the posh industry event demonstrate that bank regulators are still too cozy with the companies they regulate.

Make no mistake, the TCH-BPI conference is an exclusive affair. The groups typically charge more than $2,000 per person for nonmembers to attend.

Pay-to-play conferences where businesspeople rub elbows with government officials have long stoked concerns about regulatory capture. They create the appearance — if not the reality — of special access and influence for those who can afford the price of admission.

The most troubling aspect of the conference, however, is that TCH and BPI fundraise off of the government officials' appearances. This year, the groups have prominently featured Brainard and Hsu in their promotional materials, indicating that the regulators are a major draw for potential conference attendees. 

The sponsors generate significant revenue from their annual shindig. For example, BPI earned $1.4 million from hosting conferences in 2019 (the most recent year for which disclosures are available). That year, Comptroller of the Currency Joseph Otting, FDIC Chair Jelena McWilliams and CFPB Director Kathy Kraninger were keynote speakers.

The revenues that TCH and BPI earn from this year's event are likely to support their day-to-day lobbying and advocacy activities. By appearing at the conference, therefore Brainard, Hsu, Adeyemo and the other government officials are essentially helping TCH and BPI influence policy. 

To be sure, TCH and BPI incur considerable expenses for their high-priced conferences. In 2019, for example, BPI spent more than $3 million on events. But by featuring senior regulators as marquee speakers, the conferences generate more revenue than they would otherwise. And by hosting the convenings, TCH and BPI enhance their relationships with government officials, which pays off down the road.

The regulators' speaking engagements at the TCH-BPI conference appear to violate the spirit — if not the letter — of the agencies' ethics rules. For instance, the Federal Open Market Committee's guidelines state that senior Federal Reserve officials should exercise caution "in considering invitations to speak at meetings that are sponsored by profit-making organizations."

It is hard to see how the appearance of six Federal Reserve Board officials at this year's TCH-BPI conference complies with this policy. TCH is a limited liability company owned by 24 of the world's largest banks. As a nonprofit advocacy group, BPI is not technically a "profit-making organization," but the banks it represents certainly are.

To be sure, robust dialogue between government officials and the industries they regulate can be beneficial. It can help public-sector agencies better understand the market and lead to more effective and efficient policymaking.

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But that dialogue does not have to happen at exclusive, pay-to-play events. Banks and their trade groups have plenty of opportunities to communicate with regulators through public comment letters and petitions for rulemaking. TCH and BPI, in fact, frequently engage with the banking agencies in this way.

Nor do regulators need to attend pay-to-play events to communicate their message. For example, next week the Federal Reserve's new vice chair for supervision, Michael Barr, will deliver his first remarks at the Brookings Institution. That event is open to the public, free of charge, and will be livestreamed online.

Given these alternative communication channels, the banking agencies ought to adopt a rule barring agency officials and employees from speaking at events that charge more than a de minimis registration fee.

To be clear, none of this is to suggest that the government officials appearing at the TCH-BPI conference this week will be improperly influenced or will engage in inappropriate ex parte communications. To the contrary, I expect Brainard, Hsu and Adeyemo will reinforce their records of strong financial sector oversight.

Going forward, however, bank regulators should avoid industry-sponsored events to prevent even the appearance of impropriety.