Are banking industry regulators actually overpaid?

Yes, fine, the average regulator makes more than the average employee of a small-business bank that pays its employees modest salaries, but that’s not where they spend their time. We have a big sophisticated banking system, and we want big sophisticated regulators to regulate it. If you set regulatory compensation to compete with teller jobs at Bob’s Bank and Tackle Store, you’ll be able to hire away Bob’s tellers, and I suppose they will have some useful insights into regulating small-business banks. (Will they? Why?) But what will they do with the London Whale?

Of course, I mean, what did the Fed and OCC do with the London Whale, but still. Kupiec’s solution is to cut regulatory salaries, with targeted exceptions for employees with specialized skills. (4) It’s hard for me to imagine that this would improve regulatory morale and diligence, or make financial regulation an attractive career path for smart sophisticated people with the ability and desire to understand the businesses they regulate.

And I doubt it would cut back on the perception (and possible reality) of revolving-door corruption. But I guess Kupiec isn’t worried about that? After all, why would you leave your cushy job at a regulator for a $49,540-a-year job in the private sector? And yet it keeps happening. Not the $49,540-a-year part, but you know what I mean.

Obviously a lot of people want to cut back on banking regulation. That is an understandable desire, and there are places where I share it. Dumb regulations are dumb, and we should have fewer of them. The problem is that underpaying regulators is not an optimal way to cut back on regulation. Perhaps your $49,540-a-year regulators will be lazy and not regulate at all, but perhaps they’ll be unsophisticated and regulate in draconian and destabilizing ways; certainly there’s no shortage of simple-but-onerous regulatory proposals these days. (5) The way to get good regulation is to get good regulators. And, unfortunately, those cost money.

1. That’s 2,540 “board operations,” 115 in Office of Inspector General, and 18,656 at the regional Federal Reserve banks.
2. Sources: OCC 2013 budget, page 12 (Personnel Compensation (Total) and FTEs). FDIC 2014 budget, pages 5 (Salaries and Compensation budget item) and 1 (FTEs); you can adjust to reflect 2013 numbers but you’ll get an even lower average. CFPB 2014 budget, pages 13 (Personnel Compensation) and 12 (FTEs). Fed 2013 budget, pages 36 (salaries of Board of Governors), 37 (positions at Board of Governors), 43 (salaries of Federal Reserve Banks), and 42 (employees at Federal Reserve Banks). Note the Fed’s inspector general has a separate budget without salaries broken out, so I omit it; it’s small.
3. Although right about in line with the average pay of JPMorgan’s 251,196 employees, including tellers ($122,000 and change).
4. And this may be a fair point:
   “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.”
5. Brown-Vitter! Err, the Volcker Rule, sort of.