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Nice Little Agency You Got There

Rep. Scott Garrett, shown at a House Financial Services subcommittee field hearing in 2011, is threatening the head of a tiny agency with solo oversight hearings. (Scott Eells/Bloomberg via Getty Images)

In New York, threats can be punctuated with a mention of cement shoes or arson. In the nation's capital, they come with a mention of committee hearings.

On July 28, a staff member for Representative Scott Garrett, Republican of New Jersey, sent an email to a top staff member for Debbie Matz, the chairwoman of the National Credit Union Administration.

The agency, as its name suggests, oversees credit unions, but Mr. Garrett's man wasn't interested in that. He was writing about the Financial Stability Oversight Council, the government body that determines whether any serious risks are building up in the financial system. In her role, Ms. Matz is one of the 10 voting members of the council.

Mr. Garrett is an influential member of the House Financial Services committee. He and other Republicans have been campaigning against the process by which the council designates certain large financial firms as "systemically important." A fair number of economists think it's a good idea to identify the gargantuan, interconnected firms that might figure into the next global meltdown, but the approach is not, shall we say, universally embraced.

"There is a significant alarm from committee members about F.S.O.C. moving forward with additional designations," the staff member wrote. And then the hammer, though it came wrapped in a bit of Beltwayese: "Please leave several dates open on Chairman Matz's calendar during the Congressional session dates in September. This will be in case the Committee decides to have an oversight hearing with Chairman Matz (only) on any potential new designations and her specific justification/rationale for such a designation."

That "only" is cute. Nice little agency you got there — shame if anything happened to it.

In response to my request for a comment, Mr. Garrett's spokeswoman wrote in an email: "I completely disagree with your characterization that Congressional oversight over a federal agency is in any way inappropriate," adding, "If the head of a large federal agency can't handle standing up and explaining why they made important decisions, then perhaps they are in the wrong line of work."

Yes, Congress plays an essential oversight role, keeping an eye on executive branch agencies. But the chances that the American public will be well served by having House members grill just the lowly head of an agency that oversees credit unions about "too big to fail" issues is roughly equivalent to the odds that Vice President Joseph R. Biden Jr. will make it through the rest of the Obama presidency without another gaffe.

Although privately playing rough, Mr. Garrett has publicly carried on a faux-populist crusade against the stability council. He has called for it to be much more "transparent," and who could be against that? He recently pulled a Michael Moore-style stunt, appearing at a closed meeting of the council and demanding to get in. He was turned away, as he knew he would be.

The congressman says he is protecting taxpayers' interests. He argues that the decision to deem some firms systematically important is tantamount to announcing in advance that they will be bailed out in a crisis. He has put it this way: "Instead of solving the problem of 'too big to fail,' the Dodd-Frank Act codified it. It is now the law of the land that the nation's biggest banks will not be allowed to fail by the government."

This argument ignores several relevant points.

The Dodd-Frank law did not create large systemically important financial institutions; it recognized them. The law's passage was a sign that regulators were waking up to reality, not alerting the markets to anything that investors didn't know. Giant, systemically important financial institutions already get advantages from the markets by dint of their size. (We can debate the amount and whether these persist today. To the extent one argues that they no longer exist, that's a concession that Dodd-Frank has had a positive effect.)

So the official council designation doesn't give these firms benefits they don't already have. What it does is give regulators the power to enact additional rules — like higher capital requirements, a process by which they have to sell off assets to make good on their debts — to help reduce the chances of failures and make those inevitable failures less catastrophic.

As for transparency, it has superficial appeal. It probably would be good for the public if every large financial firm were forced to disclose all of its supervisory information. But they wouldn't stand for it. In reality, Mr. Garrett and the Republicans' push for transparency is disingenuous, an attempt at crippling financial regulation.

I'm not convinced that every large financial firm deserves the "too big to fail" designation. Nor do I think the government has imposed high enough capital requirements or figured out a workable procedure to wind down gigantic financial firms in the firestorm of a crisis. An effective system would prevent the spread of a financial crisis while punishing current management and withholding rewards from shareholders who invested in a reckless company.

That's a daunting task, and federal regulators have not yet come close to getting it right. But these are entirely different arguments than the ones that Mr. Garrett is raising.

The congressman claims to hold the pure free-market position — that financial firms that run into trouble should be allowed to fail. The problem with that ideology was evident in 2008, when the Bush Administration allowed Lehman Brothers to go down and it nearly destroyed the global financial markets and economy.

But let's say you took him at his word, that his positions are actually tougher on financial firms than those of the Democrats and the existing Dodd-Frank rules.

If that's the case, his campaign contributors have a pretty hazy sense of where he stands. When you look at Mr. Garrett's donors, the top three are the securities industry, insurance companies and commercial banks, in that order.

"Mr. Garrett's positions aren't a surprise to anyone — he's been very consistent throughout his time in Congress," his spokeswoman wrote. "He wants to decrease the taxpayer safety net over the financial services industry and promote free markets, regardless of the impact on financial contributors."

When you strip away the publicity stunts and the rhetoric, the position of House Republicans like Mr. Garrett is clear. They oppose a new, overarching regulatory body.

The attacks on the Financial Stability Oversight Council are of a piece with the systematic and continuing House Republican assault on financial reform. They have tried repeatedly to repeal it, to chip away at it, to intimidate regulators and starve them of funds.

It's tempting to dismiss the House Republican efforts, because they are unlikely to get anything passed into law.

But there are reasons to keep watch. The House recently put forward its budget plans for fiscal 2015. The increases for the Securities and Exchange Commission and the Commodity Futures Trading Commission were paltry, not commensurate with their new responsibilities.

Six years after the crisis, lawmakers feel less urgency. The body language from new Democrats on the House Financial Services Committee suggests that they think Dodd-Frank went too far, according to people I've spoken with. The Democrats have their share of mouth-waterers for Wall Street lucre.

In such a climate, threats can be effective.

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