Democrats on the Federal Deposit Insurance Corporation (FDIC) board on Thursday approved a request for information and public comment on bank mergers. Hours later, the agency released a declaration on its website, insisting that “no such document has been approved”.
The mixed messages came from an internally divided agency where a Trump president grapples with a Democratic-majority board of directors. And it might just be a gambit in a new battle on the FDIC’s agenda.
The approved request was posted not to the FDIC but to the Consumer Financial Protection Bureau (CFPB) website. The new director of this agency, Rohit Chopra, is a critic of anti-competitive banking consolidation and has signaled his interest in strengthening the Bank Merger Act. Chopra noted on Twitter that he is particularly interested in public comments on how to “avoid creating banks that are too big to fail.”
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The FDIC is chaired by Trump-appointed Jelena McWilliams, whose term lasts until mid-2023. But the five-member board includes Chopra and Michael Hsu, the acting currency controller, both appointed by Democrats. Additionally, Martin Gruenberg, former FDIC chairman under President Obama, is a senior director of the agency. The post of Vice-President is vacant.
This means the Democrats have a 3-1 advantage on the board, with McWilliams, the president, as the only Republican. The FDIC argued that McWilliams nevertheless retains the power to set the agenda, controlling what goes to the board for a vote. But Democrats who asked for information on bank mergers relied on a power to get a scoring vote on an issue, without calling a meeting.
In its statement on Thursday, the FDIC disputed the approved request for information, writing: “There was no valid board vote.” The agency added that the request had not been published in the Federal Register.
The mixed messages came from an internally divided agency where a Trump president grapples with a Democratic-majority board of directors.
But Todd Phillips, an administrative law expert at the liberal think tank Center for American Progress, said the agency’s statutes allow the FDIC to distribute written commercial articles to board members. This applies unless a member says she would prefer to deal with the matter in a meeting, he said.
In the absence of that advice from McWilliams, Democrats say, she can’t stop the majority of the board from showing will.
Gruenberg, who signed the announcement approving the information request with Chopra, argued in a declaration that “it is clear under the law that the majority of the FDIC board has the power… to circulate and act on the basis of scoring votes, to implement the actions of the board. No individual member of the Council may exceed the authority of the majority.
If this strategy is successful, it will show Democrats have the power to lead the agency’s agenda even if they don’t hold the presidency, an American Banker strategy reported in January of this year.
Jeff Hauser, a researcher at the Center for Economic and Policy Research, told the Perspective that while the norm at the FDIC is to defer to the president, majority rule gives them the power to determine key agency actions.
“If only every person Biden nominated was as determined to use every piece of their rightful power to accomplish great things as Chopra, Gruenberg and Hsu,” he said.
If the majority unites on the priorities where they conflict with McWilliams, the power could be used to promote progressive priorities such as the introduction of new prudential regulations on deposit-taking institutions, the reassessment of the leverage ratio and the ‘integration of climate measures into capital risk assessments.
Gruenberg spoke about emerging risks to financial stability due to climate change, arguing that regulators should engage on environmental credit and liquidity risks on an issue where the United States is “behind.”
There are other strategies available to Democrats to bypass McWilliams. For example, the president oversees the work of the large staff who draft the bylaws, which can span documents of several hundred pages.
But the person technically in charge of this work is the FDIC chief of staff, said Phillips, who was previously an FDIC lawyer. It’s different from other agencies such as the Federal Reserve or the Security and Exchange Commission, he said, where presidents have the final say over staff duties.
If the majority is united where it clashes with McWilliams, the power could be used to lobby for progressive priorities.
The current FDIC chief of staff is Brandon Milhorn, a former Republican staff member on the Senate Homeland Security Committee. Milhorn was brought in under the Trump administration from Raytheon, the arms maker, where he was vice president of government relations.
“They just need to find a chief of staff who is loyal to them and not loyal to McWilliams,” Phillips said.
Anticipating resistance from McWilliams, some advocates argue the fight could escalate beyond the agency.
“If the president is willing to veto actions supported by the majority of the FDIC board, then I think we’re getting into a situation where President Biden has reason to fire her,” Amit said. Narang, a regulatory policy advocate at the progressive group Public Citizen. The FDIC chairman can only be sacked by the chairman for cause, but those vetoes could reach that level, Narang said.
While the possibility of Biden removing McWilliams is remote, it could have far-reaching implications. The President of the FDIC also sits on the Financial Stability Oversight Board (FSOC), which includes the regulators that oversee systemic risk.
In that role, McWilliams has already resisted early efforts to tighten financial regulation, for example, earlier this year, when she abstained from voting on an FSOC report acknowledging that climate change poses a risk to the economy. financial stability.
Even though the FSOC report was seen as a compromise with more cautious voices, by omitting the mention of the capital risk, McWilliams refused to say, arguing that the agency needed more time to consider the report’s findings.
Republicans testing unitary executive theory under Donald Trump, extending the president’s authority over regulators to unprecedented lengths. In 2017, Trump replaced a vacant CFPB director position with incumbent budget director Mick Mulvaney, who led the part-time consumer watchdog. Democrats have accused this at odds with the plain language of the law, which in the event of a vacancy attributes power to the deputy director. A complaint has been filed but finally abandoned.
The GOP is now outraged at Democrats for adopting similar tactics. “This illegitimate and unprecedented attempt to remove a bona fide, Senate-confirmed president would severely weaken the ability of independent regulators to operate without political interference,” said Senator Pat Toomey (PA), the committee’s top Republican. senatorial bank. in one declaration which distinguished Chopra and Gruenberg.
McWilliams is also distinguished by its defenders. Born in the city of Belgrade, in the former Yugoslavia, she traveled to the United States as part of a high school exchange program, The Wall Street Journal reported in a profile, before going to college in the United States and eventually joining the Federal Reserve.
This personal experience may not be relevant to McWilliams’ work, but it bears a striking resemblance to the story of Willow Omarova, the Cornell law professor who was chosen by Biden to lead the OCC, a another leading banking regulator. Born in the former Soviet Union, Omarova came to the United States from present-day Kazakhstan as part of an exchange program. She then worked in the Treasury Department and publish influential research on commodity trading by big banks.
Omarova earlier this week withdrew from the review after hearings where Republicans focused on Omarova’s ethnic identity and speculated that she might be a Marxist. Some have denied that prejudice played a role in this accusation.
“Being an immigrant, a woman and a minority, do you think that forms the basis of one of the questions that have been asked of you today? North Carolina Senator Thom Tillis asked Omarova during these hearings. He argued that his identity did not play a role in the assessment of his candidacy.
Tillis weighed in on the FDIC spat on Thursday night, condemn the movement of “Chopra and its facilitators”. He added: “What makes this takeover even more shameful is the way Chopra and her cronies try to intimidate and intimidate an immigrant.”