Getty Primary Source Yes, I Took Bank Money. And It Made Me a Better Regulator. The liberal case for getting over our obsession with purity tests.

Barney Frank is a Politico Magazine columnist and a former Democratic representative from Massachusetts.

Who’s fit to serve in the government? There are any number of reasons to take a hard look at the motives, connections and interests of the people we choose to protect the public good. But I’m very troubled by an approach to this question gaining currency among my liberal friends. You could call it a three-pronged purity test, and the goal is to prevent anyone who seems even remotely tainted by the financial industry from gaining influence over public policy.

The three prongs are pretty straightforward. Has a candidate accepted campaign contributions from banks, securities firms, insurance companies or investment houses? Has he or she worked for any of these entities before taking a government position? And even after retirement, has he or she accepted speaking fees from such firms—or, worse, gone to work for one? If so, such candidates are considered suspect at best, and frequently face what the law calls an unrebuttable presumption that they cannot be trusted to protect the public interest from the industry’s excesses.


The unrebuttability of this accusation is especially disturbing. Once it is leveled, the actual record of the accused is given little or no weight. This is both unfair to the individuals in question and damaging to our capacity to govern—especially to our ability to build the kind of legal structure we need for effective regulation.

The latter point is the more important, and I’ll return to it. But I’m also motivated to write this in part because of the unfairness and the negative light this casts on the careers of public officials, including one with a long history of involvement in this set of issues. Me.

As you might have guessed, I am guilty on all three counts of the indictment. Over a 40-year career in elected office, I not only took contributions from that industry, I requested them—especially when I faced tough races against well-funded opponents. Since retiring three years ago, I have again not only accepted fees from financial companies and finance groups, but I’ve solicited opportunities to do so through my agents. I’ve also served for two years on the advisory board of First Alliance, a company that deals with residential mortgages, and earlier this year, I reconsidered my decision not to serve as a director of any financial entity when I was approached by Signature Bank.

So, am I untrustworthy when it comes to financial issues? Should my career be assessed differently? I’ve read strong critiques of candidates based on affiliations with the financial industry no more extensive than mine. But that hardly makes them unfit watchdogs. In fact, in the extremely remote chance that I were to consider public service again, I’m quite sure the strongest objections would come more from people in that business than from people worried about keeping it under control.

Just take a look at the record: I voted against repealing the Glass-Steagall Act. In 2004, I led an unsuccessful fight against the biggest favor George W. Bush did for the megabanks—the preemption of the authority of the states to regulate subprime mortgages. As Financial Services Committee Chair starting in 2007, I helped pass a tough reform of the big banks’ credit card practices that has saved consumers billions of dollars. And while I know some wanted more in the Wall Street Reform and Consumer Protection Act, I don’t know anyone who thinks that passage of the "Volcker rule" or creation of the Consumer Financial Protection Bureau were high on the banks’ wish list. (With the honorable exception, in the latter case, of the Bank of America.)

In retirement, I spoke out strongly against the unfortunately successful push by mortgage lenders—and, sadly, many liberal groups—to weaken the risk-retention rules for residential mortgages authorized by the new law. I also helped lobby to get the votes on the Commodities Futures Trading Commission to insist on fully regulating the derivative activities of the biggest banks—overseas, and over their objections. Both of these happened while I was being paid for speeches by groups opposed to my position on both issues.

I’ve also supported two changes favored by some in the industry, and one—raising the level at which a bank is subject to stricter regulation by the Financial Stability Oversight Council from 50 to 100 billion—would benefit Signature Bank. But I took that position after hearing Fed Gov. Dan Tarullo advocate it in April 2014, well over a year before I had any inkling that I would be invited to join its board. In summary, not only have I not changed my position on any regulatory issue because of my formal industry ties, I’ve also criticized every effort to date by congressional Republicans to weaken the law.

I don’t cite this as proof of my exceptional virtue. In fact my point is exactly the opposite: I’m representative of a large number of appointed and elected officials who have done—and are doing today—the same thing.

On the electoral side, the fact that Barack Obama received an unusually large percentage of financial-industry donations for a Democratic candidate in 2008 didn’t keep him from doing more to increase regulation in this sector than any president since FDR. One of my biggest allies in the effort to secure a CFTC majority for regulating overseas derivative activity was Chris Dodd, who received more money from banks than I did.

On the regulatory side, the work of Gary Gensler and Sheila Bair are strong rebuttals to the belief that officials are always swayed by their previous employers, or the hope of an industry job in the future. As chairs of the CFTC and the Federal Deposit Insurance Corporation respectively, they were strict regulators and forceful and effective advocates for strong legislative provisions—even coming into conflict with other members of the administration who thought they were being too tough. Clearly, neither Gensler’s prior work at Goldman Sachs, nor Bair’s later joining the board of Santander, diluted their commitment to the public interest.

In fact, their records offer clear support for my second point: that strict adherence to the purity test will almost surely hurt the cause of financial reform. Knowledge of the industry can be an essential tool in the strong regulator’s toolkit. The knowledge Gensler gained of risky derivative trading informed his ability to reform it; Bair’s board membership put an experienced believer in sound banking practices in a position to advance them.

Diminishing the incentive for people like Bair to participate in the industry’s actual conduct lessens the likelihood that it will be effectively regulated. If people like Gensler must choose between ever working in big banks or securities firms and ever serving in regulatory positions, regulation will be less effective, and more vulnerable to legislative or judicial obstruction. Good intentions are necessary to build and run a sound regulatory regime, but good intentions aren’t sufficient. “Knowing your enemy” is too harsh a phrase to employ in this context, but knowing your target well is essential.

The last strand of this argument is the devastating effect that will result if candidates for elective office are punished by the left for accepting contributions from people in the financial sector—or, since, the logic is the same, from any industry we want Congress to regulate. Even more than the other two I have cited, this prong of the purity test amounts to a self-fulfilling prophecy. Given our unhappiness at the disproportionate amount of campaign money that heavily favors the right, why would we insist on making it worse? By demonizing finance-industry contributions, we’re effectively insisting that instead of 80 percent of the industry’s contributions going to opponents of regulation, it should be 95 percent or more. Is this money corrupting? In my own experience, it’s more reasonable to see it as a form of political self-defense unlikely to dilute their support for reform. For liberals to demonize those who do so is a needless self-inflicted wound for their cause. And as I will argue in my next column, it also has another, more subtle and important effect: It contributes to the alienation which in turn depresses the voter turnout we need if we are to succeed.