Mary Schapiro will step down as chairwoman after a tumultuous tenure in which she helped lead the government’s regulatory response to the 2008 financial crisis.
Replacing her will be Elisse Walter, one of five SEC commissioners, whose career path has tracked Schapiro’s for nearly three decades.
Walter has served under Schapiro at both the SEC and the Financial Industry Regulatory Authority, the securities industry’s self-policing organization. Both women worked at the SEC in the 1980s. Walter was also general counsel of the Commodity Futures Trading Commission when Schapiro led it in the mid-1990s.
Walter is expected to follow the approach Schapiro took at the SEC over nearly four years.
President Obama on Monday announced his choice of Walter, who will take over at a critical time for the SEC, which is seeking stricter rules for money-market mutual funds and must get into shape the “Volcker Rule,” which would bar banks from making certain trades for their own profit.
The agency is also pursuing enforcement actions against banks over their sales of risky mortgage securities before the housing bust.
Obama can fill the job without Senate approval because Walter has already been confirmed through 2013.
As an SEC commissioner, Walter consistently voted with Schapiro on rule making and other initiatives.
Walter, a 62-year-old Democrat, was appointed to the SEC in 2008 by President George W. Bush.
Schapiro will leave the SEC on Dec. 14.
In a statement Monday, Obama said, “The SEC is stronger and our financial system is safer and better able to serve the American people – thanks in large part to Mary’s hard work.”
Critics argued that Schapiro, 57, failed to act aggressively to charge leading bankers who might have contributed to the economic crisis.
Under Schapiro, the SEC reached its largest settlement ever with a financial institution. Goldman Sachs & Co. agreed in July 2010 to pay $550 million to settle civil fraud charges that it misled investors about mortgage securities before the housing market collapsed in 2007.
The case came to symbolize a lingering critique of Schapiro’s tenure: No senior executives were singled out, the penalty amounted to roughly two weeks of Goldman’s earnings, and the firm didn’t admit or deny wrongdoing.
Among the SEC’s leading critics was U.S. District Judge Jed Rakoff, who questioned how the agency could let an institution settle serious securities fraud without any admission or denial of guilt. Rakoff later threw out a $285 million deal with Citigroup because of that aspect of the deal.
Lawmakers and experts say Schapiro made the SEC more efficient and fought for increased funding needed to enforce new rules enacted after the crisis. She often clashed with Republican lawmakers who had opposed the 2010 financial overhaul law and wanted to cut the SEC’s budget.
Schapiro also faced criticism over a decision she made in response to the Madoff scandal. Madoff had been arrested a month before Schapiro took over at the SEC in January 2009.
Schapiro allowed her general counsel at the time, David Becker, to help craft the SEC’s policy for compensating victims. It was later discovered that Becker had inherited money his mother had made as a Madoff investor. Schapiro acknowledged in 2011 that she was wrong to have allowed Becker to play a key role in setting the policy.
The SEC’s inspector general concluded in a report that Becker participated “personally and substantially” in an issue in which he had had a financial interest. Some lawmakers complained that the affair further eroded the public’s trust in the SEC.
Cox, the Duke professor, said that after a strong first two years, the SEC under Schapiro became less effective.
“The wind was really taken out of (Schapiro’s) sails” by the political fallout from the Becker episode, Cox said. “I don’t think she really got her legs back under her after that.”
For example, Cox said, Schapiro should have fought harder against legislation enacted in March that makes it easier for small start-ups to raise capital without having to comply immediately with SEC reporting rules.
Critics say the law went too far in removing SEC oversight and might open the door to corporate scandals or to the sorts of deceptions that led to the financial crisis.
Schapiro’s push for stricter rules for money-market funds has been opposed by a majority of SEC commissioners in the face of resistance from the fund industry. But top regulators have pressed the SEC to adopt recommendations that include requiring funds to hold capital reserves against losses and placing limits on how fast investors can withdraw money.
Money-market funds hold $2.7 trillion in assets. Any run on money funds could pose a risk to millions of investors and companies.
And the banking industry has lobbied successfully to delay the implementation of the Volcker Rule, which regulators say would force banks to more closely monitor their trading risks and might, for example, have detected trading risks at JPMorgan Chase.
Chase, the biggest U.S. bank, absorbed an estimated $6 billion in losses from its trading operation in London that surfaced last spring.