Tom Williams/CQ Roll Call via AP Images
FDIC Chair Jelena McWilliams testifies at a House Financial Services Committee hearing, May 2019.
On Thursday, Democrats on the board of the Federal Deposit Insurance Corporation (FDIC) approved a mild-mannered request for information and public comment on bank mergers. Hours later, the agency posted a statement on its website insisting that “no such document has been approved.”
The mixed messages came from an internally divided agency where a Trump holdover chair is saddled with a Democratic-majority board of directors. And it may be just an opening gambit in a new battle over the FDIC’s agenda.
The approved request was posted not at the FDIC but on the website of the Consumer Financial Protection Bureau (CFPB). That agency’s new director, Rohit Chopra, is a critic of anti-competitive bank consolidation and has signaled his interest in beefing up the Bank Merger Act. Chopra said on Twitter that he is especially interested in public feedback on how to “avoid creating too-big-to-fail banks.”
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 comptroller of the currency, both appointed by Democrats. In addition, Martin Gruenberg, a former FDIC chair under President Obama, is a confirmed director at the agency. The vice chair position is vacant.
That means Democrats hold a 3-1 advantage on the board, with McWilliams, the chair, as the only Republican. The FDIC has argued that McWilliams nevertheless retains agenda-setting power, controlling what comes before the board for a vote. But the Democrats who requested information on bank mergers relied on a power to obtain a notational vote on an issue, without calling a meeting.
In its Thursday statement, the FDIC contested the approved request for information, writing, “There was no valid vote by the Board.” The agency added that the request was not posted to the Federal Register.
The mixed messages came from an internally divided agency where a Trump holdover chair is saddled with a Democratic-majority board of directors.
But Todd Phillips, an administrative law expert at the liberal think tank Center for American Progress, said that agency bylaws allow the FDIC to circulate written business items to board members. That holds unless a member says she would prefer to deal with the issue at a meeting, he said.
Absent that notice from McWilliams, Democrats claim, she cannot stop the majority of the board from working its will.
Gruenberg, who signed the announcement approving the request for information along with Chopra, argued in a statement that “it is clear under the statute that the majority of the FDIC Board of Directors has authority … to circulate and act on notational votes, to implement actions of the Board. No individual member of the Board may override the authority of the majority.”
If this strategy succeeds, it will show that Democrats have the power to steer the agency’s agenda despite not holding the chair, a strategy American Banker reported in January of this year.
Jeff Hauser, a researcher at the Center for Economic and Policy Research, told the Prospect that while the norm at the FDIC is to defer to the chair, majority rule gives them the authority to determine key actions by the agency.
“If only every Biden appointee was as committed to utilizing every piece of lawful power to accomplish big things as Chopra, Gruenberg, and Hsu,” he said.
If the majority stands together on priorities where they conflict with McWilliams, the power could be used to push for progressive priorities such as introducing new prudential regulations on depository institutions, re-evaluating the leverage ratio, and incorporating climate metrics into capital risk assessments.
Gruenberg has been vocal about emerging risks to financial stability from climate change, arguing that regulators should engage with environmental risks to credit and liquidity on an issue where the United States is “behind the curve.”
There are other strategies available to Democrats to override McWilliams. For example, the chair oversees the work of the large staff who actually write regulations, which can stretch into documents that are hundreds of pages long.
But the person technically in charge of that work is the FDIC’s chief of staff, said Phillips, who was previously an attorney at FDIC. That’s unlike other agencies such as the Federal Reserve or the Security and Exchange Commission, he said, where the chairs have the final say on staff duties.
If the majority stands together where they conflict with McWilliams, the power could be used to push for progressive priorities.
The FDIC’s current chief of staff is Brandon Milhorn, a Republican former staffer on the Senate Homeland Security Committee. Milhorn was brought over during the Trump administration from Raytheon, the weapons manufacturer, 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 that the fight could escalate beyond the agency.
“If the chair is willing to veto actions supported by the majority of the FDIC board, then I think we’re getting into a situation where there are grounds for President Biden to terminate her,” said Amit Narang, a regulatory policy advocate at the progressive group Public Citizen. The FDIC chair can only be fired by the president for cause, but these vetoes could rise to that level, Narang said.
While the possibility that Biden would remove McWilliams is remote, it could have far-reaching implications. The FDIC chair also sits on the Financial Stability Oversight Council (FSOC), which comprises regulatory agencies that monitor systemic risk.
From that post, McWilliams has already resisted early efforts to toughen financial regulations, for example, earlier this year when she abstained from voting on a report by FSOC acknowledging that climate change poses risk to financial stability.
Even though the FSOC report was viewed as a compromise with more cautious voices, omitting mention of capital risk, McWilliams declined to affirm it, arguing that the agency needed more time to review the report’s conclusions.
Republicans test-drove the unitary executive theory under Donald Trump, extending the president’s authority over regulatory agencies to unprecedented lengths. In 2017, Trump replaced a vacant CFPB director’s slot with sitting budget director Mick Mulvaney, who operated the consumer watchdog on a part-time basis. Democrats charged that this was at odds with the plain language of the statute, which in the event of vacancy awards the power to the deputy director. A lawsuit was filed but ultimately dropped.
The GOP is now indignant at Democrats for adopting similar tactics. “This unprecedented, illegitimate attempt to depose a bona fide and Senate-confirmed chairman would severely weaken the ability of independent regulators to operate free from political interference,” Sen. Pat Toomey (PA), the top Republican on the Senate Banking Committee, said in a statement that singled out Chopra and Gruenberg.
McWilliams is also being singled out by her 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 attending college in the United States and eventually joining the Federal Reserve.
That personal background may be irrelevant to McWilliams’s work, but it bears a striking resemblance to the history of Saule Omarova, the Cornell law professor who was Biden’s pick to head the OCC, another top bank regulator. Born in the former Soviet Union, Omarova came to the United States from what is now Kazakhstan on an exchange program. She went on to serve in the Treasury Department and publish influential research on commodity trading by big banks.
Omarova earlier this week withdrew from consideration after hearings where Republicans zeroed in on Omarova’s ethnic identity and speculated that she might be a Marxist. Some denied that bias played a role in that charge.
“Being an immigrant, a woman, and a minority—do you believe that to be the basis for any of the questions that have been asked of you today?” North Carolina Sen. Thom Tillis asked Omarova at those hearings. He argued that her identity had not played a role in evaluating her candidacy.
Tillis weighed in on the FDIC spat on Thursday night, condemning the move by “Chopra and his enablers.” He added, “What makes this power grab even more shameful is how Chopra and his cronies are trying to bully and intimidate an immigrant.”
