Mary Schapiro’s Legacy: SEC Crusader Comes Up Short

Mary Schapiro’s Legacy: SEC Crusader Comes Up Short

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It’s time to bid farewell to another tough financial regulator. Mary Schapiro, chair of the Securities & Exchange Commission, will leave her post next month after nearly four years.

Schapiro, the first-ever permanent female chair of the SEC, has been the kind of regulator that believes in free financial markets – but also is all too aware that they can be manipulated and distorted by unscrupulous, reckless, stupid or criminal participants. In that regard, she is like a couple of other crusading women who served in Washington: Brooksley Born, the former chair of the Commodity Futures Trading Commission, and Sheila Bair, former chair of the FDIC. During her time at the helm of the CFTC in the 1990s (where she was succeeded by Born), Schapiro sorted out messes created by rogue traders worldwide and made some progress in reining in some of the speculative excesses in futures markets.

But, despite a laundry list of accomplishments released by the SEC as it announced her planned departure, real success proved as elusive for Schapiro, 57, as it had for many of her predecessors at the agency – remember Christopher Cox? Or Harvey Pitt? Schapiro may have restored some credibility to the agency, but it still lacks the muscle necessary to properly police its beat, or fully punish – let alone prevent – the next Bernie Madoff.

In that regard too, Schapiro’s tenure is like Born’s at the CFTC in the late 1990s. While Born failed in efforts to gain greater oversight over the derivatives market (a move that – arguably – might have prevented some of the abuses that lead to the financial crisis), Schapiro struggled in vain to implement money market fund reform or come to grips with the consequences of the takeover of Wall Street by high-speed computerized trading.

What matters most about Schapiro, Bair and Born is that all served as clear-eyed and logical critics of “business as usual.” Born, now retired, continued in that role as a member of the Financial Crisis Inquiry Commission, while Bair, after leaving the FDIC, has published a book criticizing what she views as the ongoing failures to guard against another financial crisis. (Schapiro’s announcement didn’t contain any details of her post-SEC plans.)

Schapiro’s resignation will leave at least one woman in Washington pushing for significant financial reform, since Elizabeth Warren, after being unable to win enough support from Congress to oversee the new organization she helped to create, the Consumer Financial Protection Bureau, won election as a senator from Massachusetts.

The question now is whether another one will step into Schapiro’s shoes at the helm of the SEC. Elisse Walter, a veteran regulator whose career has overlapped with Schapiro’s for decades, will take over the top SEC post. Although the appointment isn’t officially labeled as a temporary one, some SEC-watchers see her as a skilled SEC insider able to stop the agency from stalling during what may be a prolonged appointment process for the next chair.

It’s hard to imagine, given the kerfuffle over how the SEC has handled key regulatory issues in the post-crisis period and the general anti-Wall Street and anti-regulation moods in various parts of Congress, that picking the right successor to Schapiro will be a straightforward process.

Top candidates are said to include Mary Miller, a former T. Rowe Price executive and Treasury official (whose background in mutual funds might help the agency with its battle to regulate money market funds) and the agency’s enforcement chief, Robert Khuzami, who made his name with lawsuits against Goldman Sachs and the ongoing pursuit of insider trading on Wall Street.

On balance, Miller is more likely to be a candidate to win support from both sides of the aisle in Congress. Overseeing enforcement means making enemies on Wall Street, and thus among members of Congress in a position to guide the president’s selection. Even if that weren’t the case, overseeing the SEC is about more than simply cracking down on those who have strayed across the line: It involves shaping policy on where that line should be and crafting rules to define the line.

Could Sallie Krawcheck be a compromise candidate? Although a former Wall Street insider (with stints at both Citigroup and Bank of America Merrill Lynch), she is no Wall Street favorite and has – selectively and to a limited extent – voiced concerns about Wall Street’s excesses. Her background as an investment analyst monitoring Wall Street firms would provide her with the tools and background to help shape policy and compensate to some extent for her lack of legal background.

Still, don’t expect Schapiro’s position or her role to be filled quickly or easily. Over the years, the ranks of effective and committed regulators have been thinned out, and the top job at the SEC is likely to remain a thankless one.