FINANCIAL CRISIS
New SEC Chief: Tough Cop But No Crusader

If you need any evidence, look no further than the favorable -- and relieved -- reaction on Wall Street. Schapiro certainly knows the market and the agencies that oversee them. She has been a former chairwoman of the Commodity Futures Trading Commission, a one-time acting chief of the SEC and, most recently, head of the Financial Industry Regulatory Authority (FINRA), an industry regulatory group.

She has worked for Presidents Reagan, Bush senior and Clinton. That puts her squarely in the middle of decades of lax regulatory policy, during which time she has developed a reputation for being firm without rocking the boat. In fact, FINRA investigated Madoff's fund and found no wrongdoing. She can expect sharp questioning about that and other concerns at her confirmation hearings before the Senate Banking Committee next week.

Like most Obama picks, she's a pragmatist. She will undoubtedly go after fraud but isn't likely to recommend to Congress rewriting scores of rules overnight. In the wake of the financial industry meltdown the SEC is left dealing with how to regulate pieces of the industry like credit rating agencies and off balance sheet derivative transactions, not to mention defending its role as market cop. Wall Street is counting on her years of experience and bipartisan background to ward off ideas that they think go overboard.

Instead of large scale reform efforts targeting regulation structure, Schapiro and the SEC will tackle internal changes. The agency has been severely demoralized under Cox and her first task will be reversing that. The SEC will get a bigger budget to hire agents and more vigorously ferret out fraud. While Congress will holler about how to end Wall Street mischief, her focus will not be on adding more regulation, but better enforcing what is already on the books.

As for combining the SEC and CFTC, that will be a tricky task for Schapiro despite her experience at both. Her biggest achievement has been merging the National Association of Securities Dealers with the New York stock exchange's regulatory unit. Still, too many interests want to keep the CFTC and SEC separate and Obama is going to have bigger battles to fight when he gets into office.