Op-Ed: Here's why you should care about this obscure Fed position

At a time when the country is divided regarding just about everything, there is one priority we can all agree upon: the need to grow the economy and encourage the creation of more good-paying jobs.

While public attention understandably focuses on the president's high-profile cabinet selections, one obscure position receives little attention — yet it's vitally important to the future of our economy.

The position: "vice chair of the Board of Governors of the Federal Reserve system for supervision."

The "vice chair for supervision" position was legislatively created in the wake of the financial crisis and designed to shape polices regarding the supervision and regulation of financial institutions under the Federal Reserve's jurisdiction. Under the new Trump administration, the position is ready for appointment.

The vice chair for supervision will have a major impact on our economy. Decisions made by the vice chair for supervision will directly or indirectly affect personal loans, checking accounts, credit, savings, investment, real estate development, home buying, innovation, equipment purchases, business start-ups and the ability of the "unbanked" to access needed banking services.

As the vice chair for supervision makes key decisions, he or she will have a chance to strike a better balance between ensuring that capital needed to dramatically grow the economy is available, while still ensuring banking practices are responsible and prudent.

Such rebalancing is essential because too often regulations begin with good intentions, but end with too much red tape and bureaucracy. For example, the "Volcker Amendment" to the Bank Holding Company Act of 1956 was well-intentioned and needed. It was designed to prohibit banks from engaging in proprietary trading which exposed banks and others to too much risk. The law passed by Congress was a fairly simple directive to have regulations drafted to end the practice. But, the resulting regulations (including preamble, rules and guidance) are now several hundred pages long and they are very complex. As a result, substantial resources have been detoured from higher value activities, like small business lending, to legal and other compliance costs — simply because regulators failed to write the regulations in a clear and simple manner.

The cumulative impact of examples like this is that banks are squeezed in ways that ultimately squeeze customers and the economy. As banks have been forced to hire lawyers and compliance specialists to wrestle with red tape, business loans of less than $1 million have declined by 15 percent since 2008.

Of course, the cumulative impact of regulations impacts the entire economy, not just small businesses. Annual GDP growth has been disappointing for years and America's economy has been fairly anemic for quite some time.

Specific decisions on deck for the vice chair for supervision will be complex and challenging, which reinforces why nominating a highly qualified and discerning vice chair for supervision is so important. For example, the vice chair for supervision will lead efforts to: assess and adjust complex capital standards for banks in ways that provide economic growth and an ample safety cushion against risk; improve "stress testing"; optimize "living wills" for very large financial institutions; and many other highly technical, but still very important policy issues.

On the international front, the vice chair for supervision represents the United States in matters relating to global banking rules. The vice chair for supervision will need to understand cross-border business practices and regulations. He or she will need to be able to work diplomatically — but firmly — with international colleagues to ensure the unique nature of the American economy is recognized in international decisions regarding financial institutions and that related U.S. regulations do not place U.S. financial companies at a competitive disadvantage.

With so much power consolidated in one federal regulator, it's important for the president to appoint the right person with the right experience for the job. The ideal vice chair for supervision will possess deep banking and business experience with a particular appreciation for how lending decisions are made, how regulatory requirements impact those decisions, and how to still protect consumers and taxpayers.

As Congress passes reforms to grow the economy and the president signs executive orders and legislation to do the same, making a wise selection for vice chair for supervision is a crucial part of the equation for jump-starting the economy.

Commentary by Tim Pawlenty, the former governor of Minnesota and is chief executive officer of the Financial Services Roundtable. Follow the Financial Services Roundtable on Twitter @FSR.

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