Sheila Bair Goes Corporate

Sheila Bair, former chairman of the Federal Deposit Insurance Corp., has been an outspoken critic of the revolving door that delivers financial regulators to well-paid jobs in finance. This week, she revolved through it herself to a job on the board of Banco Santander SA, one of Europe’s biggest banks.

Bair’s failure to abide by her own principles has caused a flutter of protest and amusement. The complaints are fair, but they miss the point, just as Bair did: The revolving door is a problem, but the solution can’t be to lock it shut.

In “Bull by the Horns,” the book she published in 2012 after leaving the FDIC, Bair said regulators should be barred for life from working for banks they’ve regulated. Industry experience is valuable, but this should be gained through temporary assignments while remaining on the government’s payroll. Regulation should be a lifelong career.

On the charge of hypocrisy, her counsel could argue that the FDIC wasn’t the primary regulator of Santander’s U.S. operations, and the parent bank in Madrid, whose board she’s joining, is overseen by Spanish and European regulators.

Still, she’s hardly leading by example. Moving through the door to a different jurisdiction isn’t good enough. In global finance, jurisdictions overlap, and cooperation among international regulators is increasingly important. Anyway, the prospect of high-paid employment in finance could influence the way regulators behave regardless of where those jobs might be.

Bair is flouting at least the spirit of her earlier pronouncements on the revolving door. The main thing to understand, though, is that her earlier pronouncements weren’t any use.

Effective regulation demands regulators who know the industry. There’s no substitute for experience or technical sophistication. If you insist that financial regulation should be a lifelong career (with those occasional low-paid assignments), you won’t be able to recruit good people. Equally, financial firms need regulatory expertise in-house -- not just to game the rules but also for insight into the risks and errors that have jeopardized others in their business. Without the revolving door, regulators would be perpetually underpowered, and boards would be deprived of valuable talent.

It follows that conflicts of interest are unavoidable. They can be controlled but not eliminated. It’s right to impose waiting periods before banks and other institutions can hire former officials. Regulators should be better paid. And regulation should be designed so that it’s easier to monitor compliance, so as to economize on talent: The simpler the rules, the easier it is to enforce them.

Above all, taxpayers and their allies in the news media need to keep an eye on what regulators and ex-regulators are up to. The revolving door can’t be sealed, but it can be watched. For the reminder that it needs to be, Bair deserves thanks.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at