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Sens. Jon Tester and Mark Warner at the Senate Banking Committee confirmation hearing for Fed chair nominee Jerome Powell, November 28, 2017
President Biden’s pick to police big banks fended off attacks from Republicans over her scholarship on climate risk, cryptocurrency, and financial regulation, as well as her personal history and background, at a heated confirmation hearing last Thursday.
But if Cornell Law School professor Saule Omarova falls short of confirmation, it will be because Democrats who collaborated with Republicans during the Trump administration on deregulating the financial sector resent that she called attention to their efforts at the time.
Omarova, who has made the case for green public investment in the Prospect, is Biden’s nominee for comptroller of the currency, a regulatory office in the Treasury Department that oversees national banks. Omarova gained prominence for her scholarship on how, beginning in the 1970s, regulators used regulation and interpretive guidance to erode the wall between banking and non-bank activities. For example, she has studied banks’ foray into commodity trading and other commercial ventures.
The bank industry has loudly opposed her selection. Research from the watchdog group Accountable.US estimates that Republicans on the committee have received over $7.7 million from commercial banks, including trade groups like the American Bankers Association.
In the weeks leading up to the Senate Banking Committee hearing, ranking member Pat Toomey (R-PA) sought to portray Omarova as a Soviet ideologue, making repeated public calls for her to release a paper on Karl Marx that she wrote as an undergraduate at Moscow State University. On Thursday, several Republicans probed her personal background with questions that committee chair Sherrod Brown (D-OH) called “character assassination.”
Most questioners seemed more alarmed by Omarova’s body of work on bank fragility and systemic financial risk. Several zeroed in on her comments regarding financial risk related to climate change, and on scholarship drawing a distinction between speculative finance and productive investment.
Republican potshots were predictable amid a highly partisan and gridlocked confirmation process.
In one line singled out by Toomey, Omarova argued for the Federal Reserve to “maximize its capacity to channel credit to productive uses in the nation’s economy.” Toomey took issue with the suggestion that fossil fuel companies might not be “productive” investments, citing a panel discussion where Omarova remarked that small players in the coal, oil, and gas industry are likely to go bankrupt. That would be a desirable outcome, she said, in order to tackle climate change.
“The last thing we need,” Toomey said, “is a banking regulator who wants to push perfectly legal and economically necessary companies that employ millions of Americans into bankruptcy.”
Omarova said she misspoke, and that her point was that climate change will carry risks to industries that the government should help address. “My intention was exactly the opposite, that we need to help those companies to get restructured,” she said.
The Republican potshots were predictable amid a highly partisan and gridlocked confirmation process.
But Democrats Mark Warner of Virginia and Jon Tester of Montana are among the key votes who could decide whether Omarova is confirmed. At the hearing, they sulked over her past criticism of a 2018 law they co-authored rolling back bank regulations. Tester said her critique of the law raised “serious concerns.” Warner said he was “pretty disappointed.”
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“What, specifically, did you oppose about my bipartisan legislation?” Tester asked at the hearing.
Omarova said that she testified against the bill in 2018 because it “inadvertently loosen[ed] the regulatory oversight of the largest financial institutions that engage in high-risk trading operations.”
“That is really what happened,” said Carter Dougherty of Americans for Financial Reform, a nonprofit that advocates for financial regulation. In 2017, he said, Omarova predicted that Trump-appointed regulators “would take a mile if you give them an inch.”
The law Warner and Tester helped craft, S.2155, exempted large regional banks with up to $250 billion in assets from enhanced regulatory standards. It also, by changing one word in a statute (from “may” to “shall”) required the Federal Reserve to review its regulatory tailoring rules for every bank. This enabled the Trump-era central bank to eviscerate prudential regulation for the very biggest banks, with up to $700 billion in assets. In other words, the regulators were given an inch and took a mile.
Governor Lael Brainard, a relatively progressive voice at the Fed, criticized the move at the time as going beyond what was required by law to assist large banks.
In her writings, Omarova argued for the Federal Reserve to “maximize its capacity to channel credit to productive uses in the nation’s economy.”
The bill also may have contributed to a spate of bank mergers the following year, which has since only accelerated. The raised threshold allowed large regional banks to swallow up competitors without triggering more regulatory scrutiny. Paradoxically, this consolidation helped to wipe out the very community banks senators like Warner and Tester claimed the bill would help.
In other words, the bill’s regulatory relief to community banks had the perverse consequence of deregulating giant banks. Omarova’s presence may have reminded Warner and Tester of their culpability in that legislative failure.
Whether this exposure of their deregulatory bent will anger these Democrats enough to join Republicans in sinking Omarova’s appointment remains to be seen.
Although Omarova has been singled out for her criticism of S.2155, it does not set her apart as uniquely radical. Michael Barr, who was floated as a comptroller pick but walked back amid criticism that he would be too soft on major financial institutions, has expressed similar reservations. And Chair of the Securities and Exchange Commission Gary Gensler has also described the law’s “dialing down of prudential oversight” as harmful to financial stability. Gensler was not asked about the criticism at his own recent confirmation hearing.
THE BANK INDUSTRY GROUP representing Tester’s home state on a letter opposing the nominee by the Independent Community Bankers of America, which highlights her past criticism of S.2155, could have unstated reasons to dislike Omarova.
Jim Brown, executive director of the Montana Independent Bankers, is also the chair of Montana’s Public Service Commission, the body that regulates energy utilities. He was also the lawyer for the American Tradition Partnership, an opponent of campaign finance reform with links to the petrochemical-funded lobbying complex of the Koch brothers.
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“It’s pretty shocking that we would have a nominee whose prior writings are so antithetical to the community banking industry,” Brown was quoted telling The Wall Street Journal in his capacity as director of Montana Independent Bankers.
Montana’s Powder River Basin is the largest coal-producing region in the U.S., and the state consumes around a third of that coal with its electric-power sector.
In his campaign to head the Public Service Commission, Brown slammed his opponent for pushing “the green agenda.” By contrast, he said, he would advocate policies “that not only benefit the ratepayer but benefit the regulated utilities.”
CRYPTOCURRENCY REGULATION was also a flashpoint. Sen. Cynthia Lummis (R-WY), who owns Bitcoin and has pushed for weaker cryptocurrency regulations, questioned the nominee’s preference for strict oversight for privately issued digital tokens like stablecoins, which may be prone to runs and panics and have similarities to money market mutual funds.
With Graham Steele, who was just sworn in to another post at the Treasury, Omarova has written that Facebook’s digital currency could engage in bank-like activities while falling outside of bank regulation—the definition of “shadow banking.”
At the hearing, Omarova commented on the lack of sufficient public access to credit.
“How do you think that you, as a regulator, can make the judgment calls that people don’t have adequate access to capital, when countries like El Salvador have recognized Bitcoin as legal tender specifically to grant people more access to capital?” Lummis shot back.
“Before El Salvador recognized Bitcoin as its official currency, they were using U.S. dollars. And the U.S. dollar is, to me, the best money in the world,” Omarova replied.
It was one of several moments where she returned to the importance of free enterprise and capitalism, and her gratitude to have come to “America, the land of opportunity and freedom.”
Whether the exposure of their deregulatory bent will anger these Democrats enough to join Republicans in sinking Omarova’s appointment remains to be seen.
REPUBLICANS QUARRELED among themselves throughout the hearing over whether personal attacks on Omarova should be tolerated—and whether they were even guilty of making them.
Tim Scott of South Carolina praised his colleagues for refraining from personal barbs, adding that he “cannot think of a nominee more poorly suited to be the comptroller.”
He raised concerns over Omarova’s proposal for an “unaccountable bureaucracy,” the National Investment Authority (NIA). “In a roundtable this year, you pushed to make the NIA the dedicated institutional platform at the federal level for being the fighting muscle of the Green New Deal,” Scott said, referring to the Prospect series.
Minutes after Scott praised his colleagues for sticking to Omarova’s record, John Kennedy (R-LA) pressed Omarova for details on her childhood in Soviet Kazakhstan. “I don’t know whether to call you ‘professor’ or ‘comrade,’” he said.
“Senator, I’m not a communist. I do not subscribe to that ideology. I could not choose where I was born,” she replied.
Thom Tillis (R-NC) devoted much of his time to questioning whether Republicans had really targeted her for her personal background, or whether that was a narrative fabricated by liberal media, such as a New York magazine profile of the nominee.
He urged Omarova to say whether she believed that she had been the victim of identity-based attacks.
“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?” Tillis asked. “I just don’t see any basis for the so-called McCarthyism and bias.”
