I’ve complained many times about government intervention in the financial sector.
The financial and housing crisis, for instance, was largely a consequence of the Federal Reserve’s easy-money policy, combined with the system of corrupt subsidies put in place by Fannie Mae and Freddie Mac.
But there’s another government-imposed cost that burdens the financial sector.
Writing for the Wall Street Journal, Paul Kupiec of the American Enterprise Institute reveals some very sobering – and disturbing – data on pay levels for both the financial industry and its regulators.
Most banks in this country are small businesses and pay employees modest salaries. The Bureau of Labor Statistics reports that the average annual salary of a bank employee was $49,540 in 2012, not much higher than the average annual across all occupations, $45,790.
In other words, there are some very well paid people working for big banks, but most employees in the financial sector earn modest incomes.
But notice that I wrote “most employees.” That’s because there is a big group that is very well paid.
But they aren’t in the business of making loans, allocating credit, and helping to finance future growth.
That’s because these highly compensated folks aren’t in the private sector. They are regulatory bureaucrats.
…one group in banking stands out as highly paid—federal bank regulators. Before the Dodd-Frank Act, the average employee of a federal bank regulatory agency received 2.3 times the average compensation of a private banker. By 2013 this ratio increased to more than 2.7—and in some cases considerably more.
Kupiec provides details on how these bureaucrats get paid much more than wealth creators.
The average compensation at the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC) and the Consumer Financial Protection Bureau (CFPB) exceeded $190,000 in 2012. The staff at the Federal Reserve is likely even better compensated, but the Fed refuses to release employee salaries. You might think high-paying jobs at these agencies require special skills. Not so. At the OCC, secretaries make on average $79,182 per annum. Motor vehicle operators (the agency’s limo drivers) at the FDIC earn $82,130. Human resources management trainees at the CFPB make $110,759 a year. Averages tell only part of the story. In 2012, 68% of FDIC and CFPB staff—and 66% at the OCC—earned above $100,000 a year. Nearly 19% of the CFPB and OCC staff earn more than $180,000 a year. At the OCC, 10.5% of workers earn above $200,000 a year, at the FDIC 9.3%. Fewer than 7% of employees in any of these regulatory agencies earned less than $50,000. In other words, 93% of the employees in these federal bank regulatory agencies earned more than the average banker’s salary in 2012.
So what’s the rationale for overpaid bureaucrats?
Defenders of the status quo claim that high pay is necessary to attract skilled professionals.
Needless to say, that’s not true.
Instead of raising salaries to attract and retain employees for specialized, hard-to-fill jobs, federal bank regulatory agencies have increased the salaries of all employees. Ironically, the hard-to-fill jobs that require substantial education or professional experience—such as attorneys and economists with banking experience—have the smallest premiums over comparable private positions. Salary premiums are especially large for easy-to-fill jobs that require no specialized, hard-to-hire skills.
But here’s the bottom line. Consumers and taxpayers are paying higher fees and receiving fewer benefits because so much money is being diverted from the industry to finance the bureaucracy.
Who pays for these generous salaries? Bank shareholders pay directly through insurance premiums on deposits and examination fees levied by the bank regulatory agencies. These costs are passed on in higher customer fees and loan rates. The high compensation of CFPB employees is funded by taxpayers through the Federal Reserve. The runaway labor costs of these regulator agencies are not subject to congressional control, and they add up. Employee compensation accounts for about 80% of the operating costs of bank regulatory agencies. If the average regulatory employee’s compensation were equalized between bankers and regulators, the direct cost of bank regulation would fall by more than 50%.
At the risk of adding more bad news, the numbers for the financial sector are just the tip of the iceberg.
This video explains how the people who pay taxes get far less compensation than America’s bureaucrat class.
P.S. Lest I leave people a bit depressed, I want to share some good news.
I wrote back in 2011 about a motorist getting nailed for flashing his headlights to warn other drivers about a speed trap.
Here is an excerpt from a report in the Atlanta Journal Constitution about a Judge throwing out a similar charge.
Chris Hill noticed a sheriff’s deputy behind him and flashed his lights to warn a UPS driver coming the other way. The deputy pulled over Hill on U.S. Highway 140 in White City and handed him a $260 ticket for improperly using his headlights, saying another deputy had seen the flashing lights from behind the UPS truck and alerted him to stop the log truck because of the signaling. Outraged, Hill decided to fight the ticket, and on Wednesday, a Jackson County Justice Court judge dismissed the citation, finding that motorists flashing their headlights amounts to speech protected by the Oregon Constitution.
I’m in favor of being tough on crime, but only when laws are just.
So kudos to the Judge in this case. And hopefully jurors around the nation will use their nullification power to block similar cases of government over-reach.