The New Sheriffs of Wall Street

They skipped the partner track. They were underestimated by men. But the women who will regulate banking and finance for the next generation — Mary Schapiro, Sheila Bair and Elizabeth Warren — are not accustomed to taking no for an answer

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Michele Asselin for TIME

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The Bank Examiner
Sheila Bair's Washington office overlooks Barack Obama's new White House basketball court, but her agency's roots reach back more than 70 years, to Franklin Roosevelt's days. The FDIC was created by Congress over the objections of the nation's biggest bankers in the 1930s so that the government would have the power to take over poorly run banks and safeguard the nest eggs of depositors. Banks have been delighted to slap that recognizable gold-and-black FDIC guarantee on their branch doors ever since, as long as the little New Deal agency doesn't meddle too much in their business.

Bair had hardly been named to the FDIC post by George W. Bush in 2006 when aides alerted her to a dangerous disintegration of lending standards across the banking industry — loans with hidden fees, poor documentation and explosive adjustable rates. Even though the regulation of these standards was the primary responsibility of the Federal Reserve, Bair authorized her staff to purchase a large industry database to confirm their suspicions. "It was just amazing to us what we saw," she says.

She began meeting with the banks, urging them privately in the spring of 2007 to renegotiate entire categories of loans to avoid massive foreclosures that could erode home values. The banks balked, so Bair went public. "We have a huge problem on our hands," she told bankers at a conference on Oct. 4 of that year. The response was hostile. "They were shocked and horrified," she says now. "I thought they were going to throw tomatoes at me."

Of course, Bair was right about the coming crisis: by the end of 2008, 25 banks had become insolvent and were taken over by the FDIC, including Washington Mutual, the largest bank to collapse in U.S. history. By the end of 2009, 140 more banks had failed. In private meetings with other regulators, Bair continued to hold a more populist line. She pushed her own plan for foreclosure prevention, resisted a proposal for the FDIC to backstop all bank debt and effectively bail out unsecured bondholders and clashed regularly with colleagues who held closer Wall Street ties, including then Treasury Secretary Henry Paulson and Geithner, who was running the New York Federal Reserve. Bair says now that much of the tension could have been avoided. "We generally worked well together, but there were times when I felt the guys kind of got in a room and made a decision and then called me in," she explains. "And when I would ask questions or push back, I was being 'difficult.'"

The ugly days of late 2008 were strewn with moments when Bair was criticized both privately and in the press for saying what others would not. On Sept. 9, Bair decided that she had to call the CEO of Washington Mutual to warn him of a disagreement over the bank's ratings. When John Reich, the head of that bank's primary regulator, the Office of Thrift Supervision, found out about the call, he e-mailed one of his male colleagues, writing, "I cannot believe the continuing audacity of this woman."

For Bair, such challenges are nothing new. She was born in Independence, Kans., the daughter of a Depression-era surgeon and a nurse who always shunned debt. In 1981 she went to Washington to work for Republican Senator Bob Dole, who became her most important mentor. "She was available 24/7," Dole says, with a clear sense of pride. "As my wife will tell you, more is expected of women." In 1990, Dole encouraged Bair to run for an open House seat in Kansas. She ran as a pro-choice Republican and lost narrowly. "Senator Dole told me the reason I lost was because I was a woman and I was unmarried," Bair recounted in May 2009, on accepting an award at Harvard University. "That made me all the more determined to take on new challenges."

That she has done. This year Bair's agency has quietly taken over 68 more banks, though she believes the wave of failures will peak in 2010. She is pushing Congress to place her agency in charge of liquidating nonbank financial firms like insurance companies, which proved to be the source of huge systemic dangers during the collapse. If she succeeds, she says she would be happy to leave when her term expires in 2011. The author of two children's books, she has already begun to think about her memoirs. "When I write my book, that should be the title," she quips. "The Audacity of This Woman."

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