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**JANUARY 3, 2022**
Kuttner on TAP
Democrats Gain Control of a Key Regulatory Agency
Trump's chair of the FDIC, outvoted on a key issue, decides to bail.
Democrats will regain firm control of a key regulatory agency, the FDIC,
thanks to the abrupt resignation
of its Trump-appointed chair, Jelena McWilliams, on New Year's Eve.
Her departure takes effect in early February.
Martin Gruenberg, a longtime progressive Democrat on the FDIC board and
former FDIC chair, will become acting chair once again. The stakes are
huge because several major bank regulatory issues will be decided this
spring.
Here's the backstory. In early December, the three Democrats on the
five-member FDIC board formally requested public comments on the need
for tighter regulation of bank mergers. McWilliams strenuously objected
and tried to block the proposal. She wrote an op-ed in
**The Wall Street Journal** blasting the board majority's move as a
"hostile takeover
."
The politics of the situation were briefly complicated when one of the
three Democrats, Michael Hsu
,
a former mid-level Fed official who serves on the FDIC board via his
current job as acting comptroller of the currency, momentarily lost his
nerve and decided he did not want to cross the FDIC chair.
But McWilliams soon learned that the law is not on her side. The
FDIC's statute makes clear that the board is the legal authority, and
the chair has only such power as the board delegates.
At that point, she decided to call it a day, rather than serving as a
lame-duck chair with no power, even though her term doesn't expire
until mid-2023. This is a windfall for Democrats-and a reward to
Gruenberg and the FDIC board's other progressive Democrat, Consumer
Financial Protection Bureau director Rohit Chopra, for playing hardball.
With McWilliams gone, Hsu is now expected to vote with the FDIC's
other Democrats.
All of this matters because in addition to tightening standards for bank
mergers, the nation's regulatory agencies will soon act to restore
capital and liquidity requirements for big banks, strengthen
consideration of climate change in evaluating bank balance sheets, and
undertake the first toughening of regulation under the Community
Reinvestment Act in a quarter-century.
To accomplish these feats, the newly progressive FDIC will have to reach
consensus with the Federal Reserve, which is temperamentally disinclined
to aggressive financial regulation, and the Office of the Comptroller of
the Currency. This puts the opportunistic Hsu, who badly overplayed his
hand in this affair, in a swing position on these policies.
Hsu is said to be running for permanent appointment as comptroller,
elevated from acting. Siding with the Republican chair against the
FDIC's Democrats was not a great audition piece.
Hsu got the acting post after several conservative Senate Democrats,
prodded by the banking lobby, told the White House that they would
oppose Biden's choice for comptroller, the superbly qualified and
resolutely progressive Saule Omarova
.
Hsu was selected for the acting post by Treasury Secretary Janet Yellen,
who sometimes behaves as if she were above politics.
Yellen needs to remember that she is no longer Fed chair, but part of an
administration with a strong regulatory agenda. The White House needs to
take back control of this sensitive appointment from Yellen, and find a
progressive who can be confirmed.
****
~ ROBERT KUTTNER
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**Robert Kuttner's latest book is**
The Stakes: 2020 and the Survival of American Democracy
.
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