Dec. 19 (Bloomberg) -- Mary Schapiro has escaped the criticism that followed U.S. Securities and Exchange Commission Chairman Christopher Cox as subprime mortgage securities brought down investment banks and Bernard Madoff was charged with a $50 billion fraud buffeting investors around the world.

The 53-year-old head of the Financial Industry Regulatory Authority, who was nominated yesterday by President-elect Barack Obama to succeed Cox, earned a reputation for political independence during almost three decades in public service, David Martin, co-head of the corporate and securities practice at Washington-based Covington & Burling, said in an interview.

“You don’t survive in Washington for that many years by being colorful,” he said. “She is quite independent. She doesn’t bring much of any agenda other than sensible regulation.”

Schapiro, who joined the Commodity Futures Trading Commission after graduating from George Washington University Law School, will “crack down on the culture of greed and scheming” on Wall Street, Obama said announcing her nomination at a press conference in Chicago.

“The regulators who were assigned to oversee Wall Street dropped the ball,” he said.

The native New Yorker was appointed an SEC commissioner by President Ronald Reagan in 1988 and would become the first woman to be the permanent chairman of Wall Street’s federal regulator if confirmed by the Senate. She served as acting chairman from 1993 to 1994.

Perilous Time

“Modernizing America’s financial regulatory system demands that federal agencies work collaboratively, aggressively and creatively to meet head on the realities of today’s complex marketplace,” she told the press conference. “As the events for the past year, even the past week, have shown us, this is a perilous time for investors.”

Schapiro will take over an agency that failed this year to detect Madoff’s alleged Ponzi scheme and prevent the collapse of investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc.

The conversion of Goldman Sachs Group Inc. and Morgan Stanley into bank-holding companies and the takeover of Merrill Lynch & Co. by Bank of America Corp. mean that Schapiro will share financial regulation of Wall Street with Federal Reserve Chairman Ben S. Bernanke and Timothy Geithner, Obama’s nominee for Treasury Secretary.

Twin-Peaks Approach

Schapiro, in an Oct. 28 interview, endorsed a “twin peaks” approach to oversight. Such a system includes two regulators: one to focus on potential shocks to the financial system, such as the failure of a massive bank, and one to enforce compliance with rules.

She also said the Fed should be given broader authority to oversee entities such as hedge funds, which remain outside federal regulation.

“She has the political savvy necessary to work well with the Congress and White House,” said Joseph Dial, who was a CFTC commissioner when Shapiro was chairman. “I also believe she will receive a different message as to the way the SEC should fulfill its regulatory responsibilities from the incoming Administration than the one Chairman Cox received from the current White House.”

As Congress considers the broadest overhaul of financial rules since the Great Depression, “it might be nice to get somebody from outside the regulatory world to give us some fresh thinking,” said James Rickards, senior managing director for market intelligence at Omnis Inc., a consulting firm in McLean, Virginia.

Recycling Regulators

“If regulators were asleep at the switch, why are we recycling regulators?” said Rickards who, from 1994 to 1999, was general counsel of hedge fund Long-Term Capital Management LP. A group of banks rescued LTCM with a $3.6 billion bailout in 1998.

Former President Bill Clinton tapped Schapiro to lead the CFTC, the Washington-based agency that regulates daily trades in commodities such as orange juice and foreign currencies, in 1994. Treasury Secretary Henry Paulson and Cox have endorsed combining the SEC and CFTC.

Two years later she became head of the National Association of Securities Dealers Regulation Inc. Schapiro won a $12 million settlement from First Command Financial Planning Inc. in 2004 over allegations it used misleading materials to sell improper mutual fund investments to military personnel.

She faced one of her stiffest challenges in 2006 trying to convince brokerage firms to approve a merger of the NASD with the New York Stock Exchange’s regulatory unit to create Finra. The Washington-based agency, which is overseen by the SEC, inspects more than 5,000 U.S. brokerages, writes rules for those selling securities and imposes sanctions.

Creating Finra

She crisscrossed the nation holding town hall meetings with securities dealers, many of whom thought the union would benefit companies such as Merrill Lynch and Morgan Stanley to the detriment of small brokerages. In January 2007, NASD members voted 64 percent in favor of approving bylaw changes needed to combine the industry’s two self-regulators, a merger completed seven months later.

“Mary is the kind of person who can walk into a room full of grumpy old men, put them at ease and in some cases get them to swallow a bitter pill,” said Centennial Securities Co. Chairman William Alsover, who traveled with Schapiro to Chicago, Detroit, New York and Washington. “She has a certain style and panache that allows her to deliver bad news and people trust her.”

Schapiro “will get it done. She knows whose heads need to roll,” said Harvey Pitt, who led the SEC from 2001 until early 2003.

To contact the reporter on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.netJesse Westbrook in Washington at jwestbrook1@bloomberg.net

Last Updated: December 19, 2008 00:01 EST