• Allon Advocacy

The Regulatory Handoff Is Here

Given the partisan rancor that seems to erupt across both sides of the political spectrum on virtually every issue at present, one is constantly reminded of Churchill’s famous observation that “democracy is the worst form of government except for all those other forms that have been tried from time to time.” No issue, it seems, is spared from the inaction that a general lack of an ability by either party to compromise has generated on Capitol Hill. Though the GOP’s hold on the White House and both chambers of Congress have made the current Congress one of the more productive in recent memory, the data demonstrates that we have been, since the Gingrich revolution in the mid-1990s, in a relative state of legislative paralysis in America.

In designing the United States’ financial regulatory framework, the predecessors to our current crop of leaders in Washington took great pains to insulate regulators from the day-to-day – and sometimes hour-to-hour – political whims that have increasingly pervaded our system of government. Many of the financial regulatory agencies exist structurally independent from the administration. For example: no political staff, whose primary motivators may be to shore up support in the short term for their party or, say, their president’s re-election campaign, are permitted to exert undue influence on the Federal Reserve Board’s monetary policy considerations, which by statute are required to be laser-focused on the long-term stability of the United States’ economy’s employment and inflation rates. We similarly wouldn’t want a White House controlled by either party to have the ability to involve itself in enforcement actions or litigation against particular firms. That would be an invitation for cronyism and has led in other countries to widespread corruption and systems in which the government picks winners and losers.

In addition to the structural independence of many of the financial regulatory agencies, Congress has, over time, implemented an additional layer of separation between the Executive Branch and the regulatory cops on the beat. While the President has the statutory responsibility to nominate the leaders of all of the agencies – and the Senate must confirm them – the terms of heads of each agency are deliberately staggered such that there is often quite a bit of time between the inauguration of a new Commander in Chief and the expiration of the terms of the chairs, directors, and commissioners that lead the regulatory agencies under the President’s remit. Meant to provide stability and protect the financial markets from see-sawing back and forth with each election, the result of this design is that new Presidents – even those with strong views on financial regulatory matters – often find themselves stuck for significant periods of time managing their predecessor’s appointees.

Nearly fourteen months into his tenure, President Trump has only recently been able to place his own nominees at the helms of the various regulatory agencies. It was only last month, for example, that Jay Powell was sworn in as the Chair of the Federal Reserve, taking over from Janet Yellen, who had been appointed by President Obama. At the CFPB, the President had Richard Cordray – an Obama appointee and an ally of Senator Elizabeth Warren (D-MA) with whom President Trump sometimes clashed – as Director until Cordray stepped down last November. The President appointed his Director of the Office of Management and Budget, Mick Mulvaney, to serve as Acting Director of the Bureau. (That appointment is being challenged in court). It wasn’t until the end of November that the President got his man at the Office of the Comptroller of the Currency, which supervises and regulates large national banks, as well. And at the Federal Insurance Deposit Corporation, the President is still waiting for the Senate to confirm his nominee for Chairwoman. Until then, the FDIC will continue to be chaired – as it has for the entirety of the Trump presidency thus far – by Martin Gruenberg, who before his appointment to the FDIC by President Obama was a senior Democratic aide in the Senate.

President Trump campaigned on a platform that included deregulation of the financial sector, and has repeatedly underscored his view that the Obama-era Dodd-Frank Act left financial institutions “devastated and unstable” since taking office. With legislative efforts to roll back the financial regulatory regime stymied in Congress (the Senate this week began consideration of the most significant Dodd-Frank amendment bill to make it to the Senate floor since the underlying Act was signed into law in 2010, but some House Republicans object to the measure because, they say, it doesn’t go far enough), President Trump finally, in his second year in office, looks to have had the opportunity to put a team of regulatory heads in place who will pursue his deregulatory agenda.


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