Tom Williams/CQ Roll Call via AP Images
Saule Omarova testifies at her Senate Banking Committee confirmation hearing, November 18, 2021.
After facing an unusually intense opposition campaign from the bank lobby, President Biden’s nominee to head the Office of the Comptroller of the Currency (OCC) withdrew her name from Senate consideration earlier this month.
Cornell University law professor Saule Omarova is a critic of bank deregulation who in her academic research has documented the OCC-sanctioned growth of high-risk derivatives trading and cryptocurrencies. She has also argued in these pages for a New Deal–style public-investment agency.
“I was surprised that I was chosen,” Omarova told the Prospect in a phone interview about her candidacy. Industry opponents such as the president of the American Bankers Association argued that she would have attempted to nationalize banks. Omarova regards that as an obvious empty threat—and a distraction from their real concerns.
“One thing was certain—it was not ‘The People’s Ledger,’” she said, referring to an academic paper published last year describing a public option for banking in which central banks could compete with, or replace, private bank deposits. Bank industry groups singled out the issue for criticism, though Omarova would not have had the power to set up “FedAccounts” as comptroller.
Rather, Wall Street banks opposed Omarova, she argues, because her academic work pulls together technical analysis of bank activities into a broader critique of the metastasis of private finance.
A lightly edited transcript of our conversation follows.
The American Prospect: Why do you think your nomination met with such loud opposition?
Saule Omarova: The moneyed interests are not stupid. They were not afraid that as comptroller, I would somehow “nationalize” all retail bank accounts or “destroy” community banks. They couldn’t care less. What they were most worried about is the positions I’ve taken over the years with respect to the balance of power and decision-making in the financial sector. That I’ve been a vocal critic of what I see as a disproportionate shift in control over decisions made on a daily basis in the financial sector, from the American public to private financial firms and their clients.
If not “The People’s Ledger,” what, in your view, do banks oppose about your research?
In my research, I take very specific, technical areas of banking law and trace how, over time, seemingly technical and cabined decisions unleashed new, unanticipated forms of systemic risk and instability. And also, how those regulations created broader macroeconomic problems in our society—issues of financialization, supply chains, the deindustrialization and outsourcing of American jobs. It’s not an immediate result of what financial regulators or Congress or private banks have done at a particular juncture. But there is clear, logical connection between these things. That’s what I’ve been keenly interested in for the last 15 years, and have been trying to unravel, by picking examples and then drawing overarching links and conclusions that exceed the bounds of standard academic discussions about banking policy.
I guess there was a fear that I might be open to thinking systemically. Which—this is what I do, I think systemically. That’s sort of the hallmark of my scholarship. And if you think systemically, then the argument that “Look, not a single bank has yet failed because of climate change” wouldn’t fly.
I’m also on the record opposing growing concentration in the financial sector. I don’t think that we need to have $3 trillion banks. I fail to see even an economic justification for such an incredible concentration of power, let alone a political one. So the worry is clearly “Oh, she’s going to be tough on mergers.” And maybe that was also part of why community banks were so riled up, because maybe they got scared that they wouldn’t have that lucrative exit opportunity anymore.
What makes my academic work stand out, I suppose, is a lack of intellectual fear or political calculus that prevents me from trying to fudge difficult choices. My scholarship is all about taking difficult trade-offs and exposing them. Showing people, look, this isn’t just some technical decision about how to, say, increase the speed of financial transactions. There are other issues involved, that are inherently political, because they will affect who benefits.
Can you say more on the opposition from community banks, and mergers as exit opportunities?
As I understand it, a lot of the managers and shareholders in smaller banks really wouldn’t mind being acquired by a larger bank. That’s an exit opportunity for them. But the problem is that when they get acquired by a larger bank, they may have a lucrative return on their initial investment, but there is no guarantee that the larger bank doesn’t close branches in rural communities or low-income communities, for the sake of, quote, unquote, “optimizing” their own branch network.
Two Democratic senators asked you specifically about your opposition to S.2155 (a bill lifting regulatory restrictions on banks that was passed during the Trump administration, with Democratic support).
I was very surprised that the senators were so upset by my supposed opposition to S.2155. I have never written in opposition to that bill. Never. [Omarova did testify at a Senate hearing before S.2155 was introduced. She was addressing proposals that would later become S.2155, but at the time there was no bill.]
The testimony that I provided was on the day of the hearing that was dedicated to midsize and large banks, and the impact on large banks of the proposed general rollback of the Dodd-Frank Act’s provisions. My entire testimony was about the concerns that we should have with the Wall Street trading institutions, effectively, that have bank charters, pushing for rollback of the Dodd-Frank Act provision, under the guise of increasing lending to the real economy.
I specifically said several times that community banks, in fact, do deserve relief from the unnecessary regulatory burdens that they got swept up in, in the aftermath of the crisis, because they engage in different business. To the extent that the Dodd-Frank Act unintentionally made it more costly for the community banks to lend, that should be addressed.
What specific tools available to the comptroller were banks most nervous about?
Banks can’t move into a new line of business without a determination by the OCC that a particular new type of activity is permissible, as a legal matter. A lot of my scholarship has been precisely focused on that question. Is it always advisable for the OCC to allow national banks to move into a particular type of even financial activity? Now, the clearest example would be crypto finance activities … No matter the rhetoric about how great innovation is outside the banking system, how it’s all about actually providing an alternative to banking, this is the same old story.
Wouldn’t banks want insurgent fintechs—which frequently claim they are democratizing finance, or challenging conventional banks’ business model—to be restricted by regulations?
Theoretically, banks should be worried about unregulated entities and want greater regulation for them. And they do—in those areas, and at those times, where they feel that they themselves cannot participate in those same lucrative activities. They want regulation of those other guys, outsiders making money left and right. But they’re also, at the same time and more quietly, lobbying for regulators to allow them to start engaging in the same activities. Once they can engage in those activities, that’s when their desire for consumer protection and investor protection, and for general stability and law and order in those new markets, suddenly evaporates. Their rhetoric changes tremendously. And suddenly, they talk about, “Well, now that we are regulated, the good guys are playing that game. Surely that game is absolutely, fantastically kosher, and benefits everybody.”
What about the comptroller’s powers of supervision?
Supervision is a very technical exercise. It’s not like the comptroller necessarily has direct say in how individual examiners assess performance and compliance. I am extremely respectful of the jurisdictional and legal constraints on the comptroller, and the examination process. But it is a process of qualitative evaluation, of how individual banks are doing in terms of managing their risks in a way that aligns their goals and interests with the goals and interests of the public. And I would definitely have invested a lot of time and energy into building up—rebuilding, perhaps—the examiner corps at the OCC … I believe part of the fear or apprehension of, particularly, the Wall Street bankers was that the OCC examinations might get much tougher.
And what about enforcement powers?
Teddy Roosevelt used to say, “Speak softly but carry a big stick.” Enforcement is one part of that stick. A very wide range of measures can be taken. And regulators should be ready to use enforcement—even the harsh enforcement tools. Not lightly, but when it’s really needed.
There are plenty of enforcement tools, like serious fines, removals of top executives at banks that engage in continuous violations of laws and regulations, for instance, or impact on executive compensation within big banks—again, for recidivist behavior in particular.
Perhaps Wall Street bank executives were also worried that if I became the comptroller, that I wouldn’t be afraid to take that step. Why? Because personally, unlike many other comptrollers, I have absolutely no intention of going into the private sector.
The hearings and the media coverage both focused on your status as a nonwhite, immigrant, female nominee. What did you make of that?
I feel that the media has been too quick to promulgate a particular narrative. And not really focus on the substance of the issue, which is basically about what kind of financial system, what kind of banking system, do we want to have? What kind of bank regulators do we deserve? And do we want to have somebody who has been explicitly approved by the banking industry, or somebody who stands for the interests of the American people?
I do not think of myself in these identity terms. I think of myself in substantive professional terms, in terms of my views. I’ve always been like that. Those who know me will tell you that I’m not an identity warrior of any kind. And being put in a position where I had to answer this question by that FT reporter about racism, or whatever—even that became a trap, because then all these Republican senators could say, she’s playing the race card, the sexism card. I never play any cards of that kind. I’m very uncomfortable with that whole narrative. And it’s too bad that today—maybe it’s not just Democrats, maybe it’s the entirety of the left and the right, at some point both sides, are kind of all about identity. And maybe we shouldn’t be all about identity.
