January 04, 2016
Regulatory Consultancies Now Come In Democrat and Republican Flavors
Posted by David Zaring

Daniel Gallagher has announced that he will be joining Patomak Partners, a company that is going to do the same thing that Promontory and PWC does - accumulate regulators who can get banks and broker-dealers out of regulatory trouble, partly by relying on the expertise and contacts of their principals, who tend to have run the agencies regulating the banks.  It's a huge growth industry in banking regulation, sometimes dubbed shadow regulation, and a controversial one, because revolving door etc.  I, however, am all in favor of the revolving door, and see nothing particularly wrong with this one.

However!  Patomak is new and young and small, but what it represents is the politicization of these sorts of firms.  Promontory invented the genre, and it was started by Democrats, but it reads as relatively non partisan.  A review of the masthead of Patomak reveals a litany of Republican former political appointees at the SEC and CFTC, starting with the president and CEO, Gallagher, and Paul Atkins, probably the most aggressively conservative SEC commissioners ever, surely at a cost to their standing with the agency staff.

It makes you wonder what the play is.  Trent Lott successfully created a Republican K Street, annoyed at the liberal dominance of lobbying firms, and thinking that the existence of a parallel more conservative DC ecosystem would benefit his party.  Those firms do fine, I think, but being able to seriously negotiate with enforcement officials usually requires a vaguely non-partisan hue; that's one reason why law firm white collar practices generally don't sort into liberal and conservative.  I'm not sure that a right wing financial regulation consultancy makes a ton of sense from a business perspective.  So maybe you think this is like a think tank - a place where politicians hang out and make a little money before accepting their next appointment.  Except that the next appointment for SEC and CFTC commissioners, other than chair, never usually happens.  Instead, they go to law firms or academia, and become wise old people of capital markets regulation.

I suspect that the assumption is that even independent agency work is getting increasingly politicized, and so the next time there's a Republican presidency, the SEC and CFTC appointees are going to listen to Patomak, and aren't going to listen to anyone else.  That will make for some feast and famine years for the business, and isn't an entirely appetizing prospect for regulation in general.  It's also a big bet by Atkins and Gallagher, et al, on President Trump, or whoever.  But maybe they were having a hard time getting hired by less partisan firms.

 

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