Democrats will regain firm control of a key regulatory agency, the FDIC, thanks to the abrupt resignation of its Trump-appointed chair, Jelena McWilliams, on New Years Eve. Her departure takes effect in early February.
Martin Gruenberg, a longtime progressive Democrat on the FDIC board and former FDIC chair, will become acting chair once again. The stakes are huge because several major bank regulatory issues will be decided this spring.
Heres the backstory. In early December, the three Democrats on the five-member FDIC board formally requested public comments on the need for tighter regulation of bank mergers. McWilliams strenuously objected and tried to block the proposal. She wrote an op-ed in The Wall Street Journal blasting the board majoritys move as a hostile takeover.
The politics of the situation were briefly complicated when one of the three Democrats, Michael Hsu, a former mid-level Fed official who serves on the FDIC board via his current job as acting comptroller of the currency, momentarily lost his nerve and decided he did not want to cross the FDIC chair.
But McWilliams soon learned that the law is not on her side. The FDICs statute makes clear that the board is the legal authority, and the chair has only such power as the board delegates.
At that point, she decided to call it a day, rather than serving as a lame-duck chair with no power, even though her term doesnt expire until mid-2023. This is a windfall for Democratsand a reward to Gruenberg and the FDIC boards other progressive Democrat, Consumer Financial Protection Bureau director Rohit Chopra, for playing hardball. With McWilliams gone, Hsu is now expected to vote with the FDICs other Democrats.
All of this matters because in addition to tightening standards for bank mergers, the nations regulatory agencies will soon act to restore capital and liquidity requirements for big banks, strengthen consideration of climate change in evaluating bank balance sheets, and undertake the first toughening of regulation under the Community Reinvestment Act in a quarter-century.
To accomplish these feats, the newly progressive FDIC will have to reach consensus with the Federal Reserve, which is temperamentally disinclined to aggressive financial regulation, and the Office of the Comptroller of the Currency. This puts the opportunistic Hsu, who badly overplayed his hand in this affair, in a swing position on these policies.
Hsu is said to be running for permanent appointment as comptroller, elevated from acting. Siding with the Republican chair against the FDICs Democrats was not a great audition piece.
Hsu got the acting post after several conservative Senate Democrats, prodded by the banking lobby, told the White House that they would oppose Bidens choice for comptroller, the superbly qualified and resolutely progressive Saule Omarova. Hsu was selected for the acting post by Treasury Secretary Janet Yellen, who sometimes behaves as if she were above politics.
Yellen needs to remember that she is no longer Fed chair, but part of an administration with a strong regulatory agenda. The White House needs to take back control of this sensitive appointment from Yellen, and find a progressive who can be confirmed.
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