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Dueling Regulators


The FDIC, long a relatively sleepy financial regulatory agency, became the epicenter of partisan duel last week.

This coming March will mark the 184th anniversary of a congressional resolution that banned duels on the House and Senate floors. While the federal legislative branch has a storied history of personal and political squabbles — and ideological skirmishes are frequent in the judicial branch — we rarely see open partisan warfare in the executive branch, where most top officials are picked by, and serve at the pleasure of, the sitting president.


That explains why a brouhaha last week at the Federal Deposit Insurance Corporation (FDIC), which is typically a relatively sleepy financial regulatory agency, is so noteworthy and could portend a tumultuous path ahead for the financial sector.


What Is the FDIC?

As we noted in last week’s column, there are dozens of presidentially-appointed positions currently occupied by individuals whose terms of service do not expire when a sitting president leaves office. These individuals may resign if there is turnover in the White House, but they do not have to. (And, honestly, why would they give up power if one’s own party has been voted out of office?)


The current chair of the FDIC is one of those people. As a refresher, the FDIC is an independent executive branch agency that is tasked with maintaining “stability and public confidence in the nation’s financial system.” Most Americans will be familiar with the FDIC as it administers deposit insurance for funds they put away in U.S. banks. The FDIC is governed by a board of five people:

  • The FDIC chair;

  • The FDIC vice chair;

  • An internal director of the FDIC;

  • The Comptroller of the Currency; and

  • The director of the Consumer Financial Protection Bureau.

These individuals and FDIC staff insure deposits; examine and supervise financial institutions for safety, soundness, and consumer protection; make large and complex financial institutions resolvable; and manage receiverships. If that sounds relatively dry (if complex and important), that’s because it is. The FDIC generally has not been a hotbed of controversy since it was created in 1933 (though larger banks initially were not thrilled with the idea for the institution).


Currently, the position of FDIC vice chair is vacant; the FDIC chair, as previously mentioned, is a Republican; and the three other members of the board are Democrats. Normally that balance would mean the policymaking advantage would go to the Democrats, but the one Republican member of the FDIC’s board is the chair, who sets the agenda for the board’s meetings.


Who Is Jelena McWilliams?

President Donald Trump nominated Jelena McWilliams to serve as FDIC chair in December 2017. She was confirmed by the Senate and sworn in on June 5, 2018. Her term as part of the FDIC Board of Directors is six years, meaning she will not have to depart the board until June 2024 (less than six months before the next presidential election). She can serve as chair for five years, until mid-2023. She has a lot of time left to control the agenda.


McWilliams’ career includes service at Fifth Third Bank, at the Federal Reserve, and on Capitol Hill. She worked in the U.S. Senate for six years as a senior staffer to the Republican leaders on the Senate Banking Committee. That work has earned McWilliams more than a few adversaries in the progressive movement. That animosity, in part, led to the events that played out at the FDIC in the last week.


A “Coup” or a Legitimate Assertion of Majority Power?

On December 9, Rohit Chopra, who sits on the FDIC board as director of the CFPB, and FDIC board member Martin Gruenberg (the former chair of the agency under President Obama) posted a statement and request for information (RFI) on the CFPB’s website that asked the public for its input on how the Biden administration should overhaul bank-merger reviews. According to Bloomberg Law, the “stricter review of mergers” that Chopra and Gruenberg want “would effectively end big bank deals and make smaller ones tougher to get approved.”


As noted, the bank merger RFI was not even housed on the FDIC website. Why? Because McWilliams definitely does not support it. In fact, the FDIC issued its own statement against the RFI, noting that “no such document has been approved” by the FDIC.


That statement was not directly attributed to McWilliams, but during an FDIC meeting this week, the chairwoman rejected a bid by Chopra to add a record of the vote on bank merger approvals to the FDIC’s official minutes. McWilliams said, “The legal division has previously determined and the General Counsel communicated to all board members that these actions did not constitute a valid circulation of an additional vote, and therefore the document cannot be added to the minutes. That motion is inappropriate.”


Last week’s unusual move by Chopra and Gruenberg prompted a quick response on Capitol Hill. As Politico reported, Sen. Thom Tillis (R-N.C.) said, “The attempt by Rohit Chopra and his enablers to overthrow FDIC Director Jelena McWilliams is a direct threat to the independence of the FDIC, undoing 88 years of institutional norms.” Sen. Pat Toomey (R-Penn.), the Ranking Member of the Senate Banking Committee, called Chopra’s RFI a “publicity-seeking attempted coup” and an example of “lawless overreach.”


House Republicans also added their voices to the fight. Rep. Blaine Luetkemeyer (R-Mo.), said, “Director Chopra is not only weaponizing the CFPB to attack U.S. industries, but he is now trying to control an entirely different regulatory agency.” Rep. Patrick McHenry (R-N.C.), the top Republican on the House Financial Services Committee, said, “In this attempt to circumvent FDIC Chair McWilliams, Mr. Chopra proved what Republicans have warned since his nomination: he has no regard for accountability, and he intends to politicize every agency he touches, including the CFPB, the FTC, and now the FDIC.”


Strong words — but Republicans were not the only ones to jump into the fray.


Sen. Elizabeth Warren (D-Mass.), an ally of Chopra, said on Twitter, “The bank merger process is fundamentally broken and it’s time to end the rubber stamping by regulators. I’m glad the @FDICgov Board is exercising its authority.”


Chopra and his allies argue he had the authority to require the FDIC to issue the RFI because Democrats hold a majority on the FDIC board. The White House backed up that claim. An unnamed White House official told Politico, “We do not think that the FDIC chair should try to block actions that the majority of the FDIC’s board of directors legitimately seek to pursue. We support the board’s decision to move forward with its action here.”


What the Skirmish Signals for Financial Regulatory Policy

According to Politico, “McWilliams is not the only federal financial regulator being outflanked by her fellow board members.” National Credit Union Administration Chair Todd Harper, who was appointed by President Biden, “has been repeatedly outvoted by two Republicans who sit on the panel governing the agency.”


And, as Bloomberg Law wrote, the “rare public fight” at an independent agency like the FDIC “is likely” just the first salvo in a battle to” change merger and antitrust policy. Indeed, according to Politico, a CFPB official already had suggested that FDIC’s board members might pursue other remedies on the bank merger issue, including a lawsuit.


Additionally, as readers might recall, in July President Biden issued an executive order regarding how to promote “competition in the American economy.” That order called on the leading antitrust agencies, including the Department of Justice (DOJ) and Federal Trade Commission (FTC), to “enforce the antitrust laws vigorously and recognizes that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge.”


As the FTC has sought to implement that order it has drawn the ire, and a legal challenge, from the powerful U.S. Chamber of Commerce (USCC). USCC officials have said the FTC “is waging a war against American businesses.” The Wall Street Journal also has criticized the FTC. Republicans already were no fan of Lena Khan, President Biden’s choice to lead the FTC, so in the coming weeks we could see partisan fireworks from this corner in addition to what we are seeing at the FDIC. (Like the FDIC, the FTC is governed by five individuals. One seat is vacant. The commission is otherwise split two-two between Republicans and Democrats.)


The bad blood and public fights likely will not deter the Biden administration from pursuing a strong financial regulatory agenda, however. And bank merger and antitrust policy are not the only matters on regulators’ minds, of course. As Reuters noted, “Banking regulators are expected to launch an ambitious agenda including rules on climate change risk, cryptocurrency, and fair lending.” Because “many of those rulewriting projects will require buy-in from several bank regulators, including the FDIC,” last week’s effort to defy McWilliams directorship is probably just the opening shot.


Getting ready for more dueling, figuratively.


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