How to Break the Wall Street to Washington Merry-Go-Round

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To be clear, officials are not flouting any laws or rules by moving rapidly into the private sector. In most cases, they are also not attempting to influence policy in a way that bolsters their previous or future employer when they enter government. But the mere impression of a conflict is enough to hamper the institution, particularly when it comes to its role of supervising and potentially sanctioning financial firms for any wrongdoing. Following the financial crisis, American voters have been especially receptive to Fed-bashing rhetoric from both sides of the aisle, with Republicans accusing the central bank of not being transparent enough while some Democrats worry it has been too soft on the banks it regulates.

Possible conflicts exist not just for Fed officials previously employed in finance, but also for those seeking to enter the industry after working in government. What used to be called public service has become a stepping stone to private profit... Why not build a substantial, robust firewall between Wall Street and the regulators who supervise it? Otherwise, does anyone really think we have a shot at a well-regulated, less volatile banking system?

Let's impose a three-year waiting period between any financial sector position and any regulatory or supervisory role in government. That would substantially diminish the "prestige advantage," to use the Fed's own terminology, that public officials confer on private institutions because of their inside knowledge and personal connections. Similarly, a three-year cool-off would scrap the incentive banks currently have, including bonuses, to actively try to place their executives in top public office.