Michael Brochstein/Sipa USA via AP Images
Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, speaks at a hearing of the House Committee on Financial Services at the U.S. Capitol, May 15, 2024.
A few days after most Democrats, at White House urging, resisted Republican calls for FDIC Chair Martin Gruenberg to resign, Senate Banking Committee Chair Sherrod Brown abruptly changed the game plan. On Monday, Sen. Brown (D-OH), who is in a tight re-election race, called on President Biden to appoint a new chair, with Gruenberg continuing in his job only until that appointee is confirmed. Other key Democrats, who had reluctantly gone out on a limb for Gruenberg, were blindsided.
Brown’s play does deflect the Republican pressure on Gruenberg to step down now, which would have left the FDIC with an acting Republican chair. That would have killed several key pending banking regulations, including increasing bank capital adequacy and restricting exorbitant executive pay. Gruenberg also supports tough regulation of cryptocurrencies, and crypto execs rejoiced at his downfall. When Brown’s plan to replace Gruenberg was announced, Castle Island Ventures partner Nic Carter called it “the best day ever.”
But Brown’s surprise move seems too clever by half, and it could well lead to an industry-friendly successor at the FDIC. Today’s Washington Post runs an ill-informed editorial that was likely inspired by a White House trial balloon, proposing Nellie Liang for the FDIC job. Liang is Treasury undersecretary for domestic finance, after a long career at the Fed. She is part of Treasury Secretary Janet Yellen’s effort to turn the Treasury into a kind of branch of the Fed, which has long resisted effective regulation. Liang is far from a strong regulator. She was even nominated by Donald Trump for a seat on the Fed board.
Even worse would be another name that has been floated, New York state Superintendent of Financial Services Adrienne Harris. As I reported last month, Harris began her career at the BigLaw firm of Sullivan & Cromwell, worked in the Obama Treasury, and then brought fintech to the land title industry. Her state regulatory schema for crypto is weak. In an abortive move that collapsed of its own weight, Senate Majority Leader Chuck Schumer tried to tie the FAA authorization to legislation to take crypto regulation away from the SEC in favor of a default to state approaches like Harris’s.
Among more progessive possible nominees, some people who have been mentioned include former SEC Commissioner Kara Stein and Tanya Otsuka, whom the Senate recently confirmed as a board member of the National Credit Union Administration. Otsuka has worked at the FDIC and on the staff of Sherrod Brown. Another plausible nominee would be Bharat Ramamurti, former deputy director of the National Economic Council and a close adviser and former senior staffer to Sen. Elizabeth Warren. Progessives need to unite behind a plausuble candidate, and fast, and make clear the stakes to President Biden.
A key question is who at the White House will control the process of picking a nominee. Ostensibly, Lael Brainard, chair of the National Economic Council, will play a key role. Brainard was formerly the most pro-regulation governor of the Fed. But the risk is that someone from Biden’s inner circle, such as lobbyist-friendly Steve Ricchetti, will dominate the process. Brainard, who has been short-listed as Treasury secretary in a second Biden administration, may not want to make waves. It’s not clear whether Biden will get personally involved or whom he will listen to.
Friends of tough regulation may be better off if the process bogs down and Gruenberg, even as a weakened lame duck, remains as interim chairman. Brown has promised to expedite the confirmation, but first the White House has to send up a nominee. It’s almost Memorial Day, and the White House has other priorities.
One has to feel some compassion for Gruenberg. He made a career-ending blunder by failing to take the reports of sexual harassment seriously and he is paying a severe price. But Gruenberg has been a principled and knowledgeable financial regulator who has long served the public interest. He was the rare regulator who resisted the seven-figure temptations of the revolving door. That fine history and not the circumstances of his departure should be paramount in how Gruenberg is remembered.
