Commentary: After sequestration, the world is going to need more finance specialists

March 10, 2013

Federal spending cuts have the Washington region reeling with alarming job-loss projections. But there is a growth area where the government will actually need more qualified professionals: Financial regulation.

The 2010 Dodd-Frank Wall Street Reform Act has altered the responsibilities of the federal government, creating a new demand for talent in the region’s financial regulatory centers.

Here’s a snapshot of the newly mandated agencies established to execute the legislation’s 2,300 pages of new rules and directions:

The Consumer Financial Protection Bureau regulates consumer financial services, such as online banking, credit unions and mortgages as an independent office in the Federal Reserve.

The Financial Stability Oversight Council oversees systemic risk, promotes market discipline and responds to threats to financial stability.

The Office of Financial Research and Federal Insurance Office within the Treasury Department are charged with managing data in an evolving financial industry.

The Investor Advisory Committee and Office of Housing Counseling are set up to advise the Securities and Exchange Commission on retail investing and provide the commission with investor perspective that’s both non-enforcement and regulatory

The Office of Minority and Women Inclusion is charged with ensuring “the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in activities of their agency.”

These hubs will rely on finance experts who can engineer, regulate and execute new tools and systems with an intellectual capacity unprecedented in the federal workforce.

Magnifying the shift is the fact Dodd-Frank is requiring hundreds of rules to be formulated and written, let alone regulated and enforced. In other words, Congress outlined its vision in the legislation, but now experts in these regulating agencies are tasked with filling in the details — devising the working parts.

This is just the beginning of a long-term venture into new territory.

An advanced breed of federal risk analysts will be needed to execute the Office of Financial Research’s oversight of the financial system, which encompasses identifying potential sources of systemic risk — a pretty broad mandate.

Housing presents another challenge. The Consumer Financial Protection Bureau has started issuing, and now must enforce, rules to prevent mortgage lenders from steering borrowers to costly and high-risk loans in an environment where consumers are typically overwhelmed by various types of mortgages and their associated risks. It’s not clear whether CFPB will prohibit certain practices or require greater transparency to existing practices.

Dodd-Frank also affects existing agencies. The SEC and the Federal Deposit Insurance Corp. are tasked with creating “living wills” to mitigate the fallout from large bank failures.

The implications for Washington’s federal workforce reach into the private sector as firms are augmenting existing compliance activities to keep pace with newly generated rules.

Timing is crucial, especially for federal workers, to take advantage of this shift in the federal government’s role in our financial system by gaining and leveraging expertise in financial products and markets.

Michael Faulkender is an associate professor of finance and directs the master’s program in finance at the University of Maryland’s Robert H. Smith School of Business.

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