"Central bank independence has reached peace for our time"
Monday's links on bank supervision, central bank independence, agency independence, and more
Some links to get your week started.
Peter Conti-Brown and Sean Vanatta on the History of Bank Supervision in America, Macro Musings, June 9, 2025.
Always a delight to talk to David Beckworth on the best podcast on macroeconomics. The occasion for this appearance is the publication of my book with Sean Vanatta, Private Finance, Public Power: A History of Bank Supervision in America (Princeton, 2025). We’ll have a formal book launch tomorrow at Brookings - I hope you’ll join us (we’re at capacity in person, but it’s viewable online).
In the podcast, we cover a lot of terrain, not least how bank supervisors can think about risk taking, the institutional disarray of federal banking supervision, and an almost chapter-by-chapter summary of what this fascinating and largely hidden history means about the debates of our day. I hope you’ll listen — special bonus, you’ll learn the origin story of my career as a powerlifter.
Today’s post is my tongue-in-cheek reference to Chamberlain in Munich. The Supreme Court appears to have spared central bank independence using some rather preposterous legal reasoning. In fairness, this was a preliminary order and the observation was a footnote. And perhaps this peace will endure longer than Munich. In any event, I think it is good to have independent central banks. I am less sure of my views on the Supreme Court’s ability to reason from history.
“The truth is that financial regulation often is not some technocratic science where experts can objectively find the ‘right’ answer,” from Don’t Mourn Regulatory Independence, by Seth Frotman and Jeremy Kress, Democracy, Jun 9, 2025
This is a terrific article in Democracy by two leading thinkers on the left in financial regulation, Seth Frotman and Jeremy Kress (disclosure: I know Jeremy well and consider him a close friend.)
I would wager there are few if any questions where I am further left than the two authors (I’m dramatically liberal in the classical sense when it comes to immigration policy, which today codes as left-wing — maybe there?). I found some of the parade of tropes in this piece about regulatory capture and regulators causing the 2008 financial crisis to be pretty thin gruel. But the overarching point that they make is a very serious one: what, exactly, is the epistemology of “regulatory independence” relative to alternatives?
I have written about this question over and over again. I lament the demise of Humphrey’s Executor because I do think there is some kind of ethos of technocracy that provides medium-term stability as ballast against short-term political accountability. When pressed, however, I cannot easily define its boundaries. (I tried with my co-author David Wishnick in this article in 2021; you’ll see that the boundary problem itself is hard to define.)
If technocracy means that experts can, say, count something that needs counting but that politicians will use “alternative facts” to come to a different count, then, hoo boy, the demise of regulatory independence is a tragedy. Think of the production of economic data and the consequences of its politicization, or whatever it is that RFKJr thinks is good science about autism over the objections of autism experts.
As soon as we are in the world of value judgments, or balancing incommensurable tradeoffs, I have profound doubts about the business that technocrats have controlling public policy. In that event, “regulatory independence” becomes a justification to prevent democratic accountability on decisions where experts have no relevant expertise. I’m not exactly sure what word we should use for that system, but it is neither rule by the people nor rule by the experts.
Eliminating the Office of Financial Research, in Scott Releases Banking Committee Provisions for the OBBB, Jun 6, 2025.
I liked it better when we called legislation by its chamber and number — e.g., S 2155. I can barely bring myself to write the risibly-named One Big Beautiful Bill.
There are some banking proposals coming out of Senator Tim Scott’s committee that are part of the Trump Omnibus. Some are truly terrible ideas, such as completely defunding the CFPB. The CFPB is not revenue negative or even revenue neutral. Like the IRS, it is revenue positive. Looking deeply at some of these enforcement actions that have led to recoveries shows that there is outlandishly predatory behavior that the CFPB has rooted out. Reasonable people can think about enforcement priorities differently, of course; even the idea of folding consumer financial protection back into the prudential regulators is a plausible one. But eliminating the enforcement of consumer financial protection laws? Such a terrible idea.
I’m not wildly enthusiastic about most of the others. For example, non-monetary policy staffers at the Fed are getting a pay cut. This is a mistake. We should pay public employees more, reward excellence better, and make it easier for underperforming employees to be laid off.
One change, though, has me unsure. Senator Scott would eliminate the Office for Financial Research, a small body funded by an assessment on large banks created in Dodd-Frank. At the time of passage, I really liked the idea of moving financial research into a quasi-independent body, located within Treasury. The Fed has dominated financial and economic research for so long that the Treasury often had to scramble to understand the state of the world, including by “seconding” Fed staffers to provide that information. Better for the fiscal authority to have independent research and analysis, all else equal.
But the Trump and Biden Administrations essentially gutted this Office. I cannot recall the last time I saw an OFR report in the literature. It just wasn’t a priority for either party since the second Obama Administration—I’m not exactly sure what it is doing now. Perhaps it is time to go?
Pat Griskus Olympic Triathlon, Jun 14, 2025, Middlebury, CT.
My next race is on Saturday. It’s coming pretty soon after my last one, but I’m ready. I had zero soreness or stiffness after my Maryland Olympic on May 31, so I plan to push harder this time. I also have a new bike, a Quintana Roo XPR. I am loving every second on this beautiful machine, as awkward as I feel negotiating turns and pedestrians on the shared biking/running path near my house. But the triathlon has few turns and no pedestrians. I will be riding a rocket.
Almost every other part of my training is going very well. Swimming is the exception. I still swim like a rhino that thinks he’s a hippo. Regardless, I’m swinging for the sub-3 hour Olympic. Wish me luck.
Odds and ends.
I liked this review of Private Finance, Public Power from Willem Buiter—he wishes we had taken the history to the present, but I regret nothing. Ending in 1980 makes it so much easier to use this history to inform debates rather than pick which side of the contemporaneous debate “owns” the history.
Great conversation with Chris Hughes last week on Fed independence. Check it out here.
Norm building alert: I receive a lot of invitations from a lot of people from all over the world that go something like this. “Hi Peter, give me a call when you can?” No other explanation follows about priority, urgency, topic, etc. Some of these people are perfect strangers (these messages get deleted, they look spammy). Some are passing acquaintances. Some are better known to me. But here’s the norm, y’all: we should never do that to each other, unless you are related by blood or the closest of bonds. For everyone else, just add a sentence of “I’m contemplating a career change and would love your advice” or “I have a perspective on something you wrote that I wanted to share, not over email” or “My house is on fire right now and didn’t you have a house burn down once?” To be clear, on that last one you should not be emailing me at all, but if you did email, you should tell me it’s because your house is on fire.
Yesterday some young people at church told me that I sing too loudly during the congregational hymns. I told them that their complaints fed my soul, that they have inspired me to sing louder still, that we as a species evolved to sing together as a mechanism of community building and that if I ever saw them skipping the hymns I would use my power in the church to make them give speeches in front of all of the Latter-day Saints in Philadelphia. It was a nice chat. Point is, one way to heal the world is to find ways for people to gather and sing their hearts out together, no matter their skill level. It’s one of my favorite parts of organized religion.