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The Fed’s vice chair for supervision is responsible for scrutinizing the biggest banks, determining proper capital ratios, and dealing with proprietary trading and other financial innovations.
Since the beginning of the Biden transition, progressives have been laser-focused on personnel, arguing that it matters who ends up in the room when big decisions are made. This focus has been validated; key personnel in areas like antitrust, trade, worker rights, economic policy, and financial regulation have reversed many laissez-faire policies of the past and revitalized the public sector. Compared to the Obama administration, where a Citigroup executive helped choose the economic team, it’s been a sea change, with progressives not only slotted into top positions but scattered throughout the government, gaining experience for the future.
But in a 50-50 Senate, confirmations of such positions are always in peril. If a nominee can’t attract Republican support, all Democrats must support them if they’re to take office, giving huge leverage to the Manchins and Sinemas of the world. Meanwhile, nominees who are friendly with big business can grab a few Republican votes, reducing the leverage of progressives to block.
This structural problem has revealed itself recently. Corporate Democrats have been able to take down the progressive-endorsed nominations of Saule Omarova for comptroller of the currency and Sarah Bloom Raskin for vice chair for supervision of the Federal Reserve, at the behest of banking interests and, in the case of Raskin, fossil fuel companies.
These positions still remain open. Michael Hsu, a former Fed official, is the acting comptroller and may stay there indefinitely. And according to several reports, the administration is considering Michael Barr for the vice chair of supervision slot. Barr is a veteran of the Clinton and Obama years who is now the Sanford Weill Dean of Public Policy at the University of Michigan. (Weill was the former CEO of Citigroup, whose merger with Travelers Insurance triggered the end of Glass-Steagall and the beginning of the mega-bank era.)
Barr has been hanging around the periphery of the Biden administration for a while, first suggested for a top Treasury Department role and then for the OCC, a high-profile fight he ultimately lost amid progressive pushback. Barr was even rumored for a Fed spot back in 2014; he withdrew then too after an outcry.
The progressive rationale for opposing Barr hasn’t changed, but the circumstances have. Despite his links to the Rubin/Geithner era and his questionable commitment to strong bank supervision, the current dynamic may allow Barr to finally make it through unscathed.
Plenty of critics see that as a mistake. “Anyone against Barr for OCC should be quadruply against him for vice chair of supervision,” said one financial reformer who requested anonymity because of their work on the nomination. “That’s the most important financial regulator, not only in the U.S. but in the world.”
AS ASSISTANT TREASURY SECRETARY for financial institutions in the Obama years, Barr was the key right-hand man to Tim Geithner and liaison with Congress on the Dodd-Frank reforms. Sheila Bair wrote considerably in her memoir of that time about how Barr defended the financial industry from aggressive regulation at every turn, seeking to eliminate strong derivatives regulations, weaken the Volcker Rule that attempted to prevent banks from engaging in risky trading with customer money, and preserve the ability for future bailouts. He infamously gave the quote to New York magazine that the bill could have broken up big banks if Treasury had agreed to it, but they decided against it.
Barr was also the lead designer of HAMP, the failed foreclosure mitigation program that allowed banks to trap borrowers in predatory schemes. Barr kind-of sort-of apologized for the failure to stop the foreclosure wave in a 2020 book, saying that the White House should have “acted more forcefully from the start.” He also led the investigation into fraudulent evictions with phony documents, promising things would change within a year. (They didn’t.)
The vice chair is responsible for scrutinizing the biggest banks, determining proper capital ratios, and dealing with proprietary trading and other financial innovations. The vice chair also represents the U.S.in cross-border negotiations over international banking standards. “Putting Barr in charge of regulation at the Fed, the institution which bails out banks in the first place, would torpedo any notion that Democrats have learned from that error in judgment,” wrote Jeff Hauser of the Revolving Door Project in a statement.
Observers have also expressed concern over Barr’s ties to the fintech and cryptocurrency industries. He did advisory work for Lending Club and Ripple; the former fired its CEO after doctoring loans to make them suitable for a buyer, while the latter is in the midst of a knockdown fight with the SEC after the agency labeled one of its coins as an unregistered security. Previously, Barr sat on the board of the Alliance for Innovative Regulation, a fintech and crypto front group whose ideas boil down mostly to throwing out a bunch of alleged burdens to innovators.
Crypto companies were delighted when Barr was rumored for the OCC position. Since then, the Biden administration issued an executive order on “responsible development of digital assets” that some saw as friendly to the industry. (Bitcoin prices jumped on the news.) With reports of crypto firms writing their own regulations in the states, companies like Binance laying out deliberate efforts to evade federal scrutiny, and hundreds of public officials moving through the crypto revolving door, this is an inopportune time to bring in yet another person with industry ties. At the Fed, efforts are under way to create a central-bank digital currency, and the vice chair for supervision would play a major role in that.
BARR’S RESUME SHOULD BE, as it was in the past, a nonstarter for a critical mass of Senate Democrats. Sen. Sherrod Brown (D-OH) publicly sided with Mehrsa Baradaran, a UC Irvine professor, over Barr for the OCC slot. (Neither ultimately got the nomination.) But despite Barr’s roots in the old guard, everyone agrees that he was solid during the Dodd-Frank debate on consumer protection. He fought hard for the CFPB, earning him praise from Sen. Elizabeth Warren (D-MA), who would normally lead these fights. The two appeared together as recently as February.
Brown, who went to the mat for Omarova and Raskin and came up empty, similarly has a long-standing interest in consumer protection. While most of that job is in the hands of the CFPB and not the Fed, the vice chair will play a role in the update of the Community Reinvestment Act. Politico wrote that Brown “is expected to be supportive” of a Barr nomination, something written suspiciously vague enough to make it sound like it came from Brown, though it easily could have been the White House’s interpretation.
The senator with the biggest beef with Barr is unquestionably Sen. Jeff Merkley (D-OR), who authored the Volcker Rule that Barr weakened. Staffers involved in that fight have accused Barr of not telling them the truth. But most of those staffers are out of Congress, Merkley no longer sits on the Banking Committee, and he hasn’t had much to say on these issues in the past few years. Merkley’s office did not respond to a request for comment.
According to sources with knowledge of the deliberations, little work has gone into finding a more aggressive alternative than Barr.
Barr himself has clearly been making overtures to Republicans. The Politico piece leaking his position as a top candidate included a month-old interview with Barr, in which he said that the Fed job “ought not to be a partisan role,” and that the previous vice chair for supervision, Randal Quarles, made “substantive” choices on deregulation. Barr was quick to add that he disagreed with “a number of policies” pursued by Quarles, but the language Barr used rankled some. “Which policies did he agree with [Quarles]?” asked one reformer.
Yet despite this outreach, it’s hard to see exactly how Barr, or any Biden nominee, would win Republican votes. Republicans expect the Senate to flip in their favor in November, and they could simply hold out and get full veto power over the nomination. That could shift the current, pre–midterm election dynamic back to giving a single Democratic senator the ability to block Barr. And the appetite for fighting for a more progressive nominee is relatively muted.
Certainly, there are those who want the fight. “Barr can’t be trusted to make enemies of the old banks or the new fintechs when necessary for the safety and soundness of the financial system,” said Hauser. “We need a vice chair of supervision who looks out for the people and the economy, not for his own career.”
One thing that’s certain is that the Senate will not wait for the vice chair of supervision nomination before advancing the other four Fed nominees already before them. That means that there’s time for opposition to potentially emerge, perhaps from Merkley, or the always-game Sen. Bernie Sanders (I-VT), or someone else.
The fight between Democrats who favor Wall Street and those who support Main Street has been raging for years. Barr is a complicated figure in that battle, but one with clear links to the old guard’s bank-friendly posture. Progressives want to maintain the gains they’ve made on personnel in the Biden years. Whether they’ll decide to take on someone like Barr rather than protecting their flank remains to be seen.
