Who’s who among Biden’s financial regulators (so far)

The door of the Office of the Comptroller of the Currency has been revolving at a considerably more rapid pace than usual, with five comptrollers leading the agency in an acting or confirmed capacity in the last four years.

The door also appears to be revolving on whom the Biden administration wants in the role.

No official OCC nominee has yet been named. Michael Barr, a former Treasury official and dean of the University of Michigan’s Gerald Ford School of Public Policy, initially emerged as a frontrunner. But some progressives loudly objected over his ties to the fintech industry and some regulatory policies originating with the Obama administration, and it was reported this week that he was out of the running.

More recently the focus has shifted to Mehrsa Baradaran, a University of California, Irvine law professor and an author who writes on issues of race and income inequality, with rumors flying this week that the White House was close to nominating her. She would be the first woman and person of color nominated for the Senate-confirmed job since the agency was founded in 1863. Meanwhile, a third potential contender, Manny Alvarez, who heads California’s Department of Financial Protection and Innovation has also emerged.

Baradaran is the clear favorite of some community activists and consumer protection watchdogs. Senate Banking Committee Chairman Sherrod Brown, D-Ohio, has reportedly pushed for Baradaran to get the nod. Her academic work has focused on diversity and financial inclusion, including the books “How the Other Half Banks” and “The Color of Money: Black Banks and the Racial Wealth Gap.”

The agency is currently led by acting Comptroller Blake Paulson. Whoever the administration selects to succeed him would likely seek to reverse some initiatives put forward by the agency during the Trump administration.

First on that list would be the revocation of the so-called fair-access rule barring banks from denying loans and services to legal enterprises — a rule that then-acting Comptroller Brian Brooks finalized only days before President Biden’s inauguration and that both banks and public interest groups decried as misguided. The OCC has already delayed implementation of the rule pending confirmation of the next comptroller.

Another is the OCC’s final rule modernizing the Community Reinvestment Act. The rule, finalized last May, is only partially in effect. Both Barr and Baradaran have been critical of the way the 1977 law has been implemented and the OCC’s more recent efforts to modernize it. The widely held expectation is that the rule will be reviewed and revised in the Biden administration.

There is perhaps no more politically volatile job in federal bank regulation than that of director of the Consumer Financial Protection Bureau. To lead the agency in the Biden administration, the White House nominated Federal Trade Commission member and former CFPB official Rohit Chopra. He addressed the Senate Banking Committee in a nomination hearing on March 2. The agency is currently led by acting Director Dave Uejio.

At the FTC, Chopra was an outspoken critic of large corporations and ineffective government actions on issues ranging from Big Tech to elder fraud. His reputation as a consumer advocate has endeared him to the progressive wing of the Democratic Party, but could narrow his cross-party appeal. To date, no Democrats have expressed concerns about his nomination, and Senate Banking Committee Chairman Sherrod Brown, D-Ohio, praised him as a “bold and experienced choice” to lead the agency. He was confirmed by the Senate to his FTC post without opposition in 2018.

If confirmed, Chopra will likely reverse a number of his predecessors’ regulatory actions, including rules on payday lending and debt collection. Given his prior role at the CFPB focused on student loan issues, he will likely turn his attention to questionable student lending practices as part of a broader effort by the Biden administration to minimize the economic drag caused by more than $1.6 trillion in outstanding student loan debt.

He will also likely reinstate the CFPB’s Fair Lending Office, which was stripped of enforcement power under former acting Director Mick Mulvaney. Enforcement is likely to boomerang back to a top priority for bureau leadership, as it had been under former CFPB Director Richard Cordray during the Obama administration.

The Biden team announced in late January that it had tapped Gary Gensler, the head of the Commodity Futures Trading Commission under President Barack Obama and a Treasury official under President Bill Clinton, as its choice to head the Securities and Exchange Commission.

Gensler made a name for himself at the CFTC as a forceful manager and vocal critic of market speculation. The Dodd-Frank Act placed a substantial task ahead of the commission — developing a framework for bringing transparency and accountability to the opaque and enormous derivatives market that had contributed to the 2008 financial crisis. Gensler’s CFTC pushed through scores of rules, guidance documents and orders, many of which drew sharp criticism from Wall Street firms.

That reputation as a hard-nosed regulator has done little to strengthen his bipartisan appeal. But the recent GameStop short squeeze episode — and secondary questions about market manipulation, short-selling and stock trading apps like Robinhood — could galvanize Democrats in the Senate to install Gensler quickly.

Gensler at the helm of the SEC could also enable a more aggressive agenda from the Financial Stability Oversight Council. The FSOC’s primary regulatory power — besides designating nonbank firms as systemically important — is to direct agency heads to pursue recommended changes. In the early days of the council, reforms to money market mutual funds were identified and sent to the SEC, but what the SEC ultimately passed was considerably less aggressive than what the FSOC envisioned.

Rep. Marcia Fudge, D-Ohio, was tapped by then-President-elect Biden as housing and urban development secretary in December, among his earliest nominations. But the longtime House Agriculture Committee member was reportedly lobbying to head the U.S. Department of Agriculture instead. Fudge’s nomination was cleared by the Senate Banking Committee last month.

During her Jan. 28 testimony before the Senate Banking Committee, Fudge was emphatic about the need to increase the nation’s affordable housing stock and make homeownership more readily available, particularly to marginalized populations.

“We need to make the dream of homeownership — and the security and wealth creation that comes with it — a reality for more Americans,” Fudge said. “That will require us to end discriminatory practices in the housing market and ensure that our fair-housing rules are doing what they are supposed to do: opening the door for families, especially families of color who have been systematically kept out in the cold across generations, to buy homes and punch their ticket to the middle class.”

She similarly committed to rethinking the Trump administration’s “disparate impact” rule, which many congressional Democrats said upended the primary legal standard that regulators use for demonstrating housing discrimination.

On Feb. 24, the Senate Small Business Committee approved the nomination of Isabel Casillas Guzman, who has served as California’s Small Business Advocate, to become head of the SBA. She is awaiting a vote in the full Senate.

The SBA gained a great deal more visibility in 2020 with the implementation of the Paycheck Protection Program, a means for businesses to obtain forgivable loans to continue paying their workforces during the COVID-19 pandemic.

But the challenges many businesses faced in obtaining those loans and having them forgiven, as well as the confusion many banks faced implementing the program, are among the first issues Guzman will have to deal with if she is confirmed.

Guzman served as the deputy chief of staff to the head of SBA during the Obama administration. During her Senate confirmation hearing, on Feb. 3, Guzman committed to making the next iteration of the PPP “as accessible as possible to all of our small businesses who qualify.”

But she also said that it is critical that the agency refocus its attention to expanding access to capital for small-business owners, particularly in communities of color that may experience racial barriers to traditional lending sources.

“There are many communities that face barriers to capital or have experienced historic racism or barriers that have prevented them from building the wealth that’s needed for accessing capital,” she told the Senate Small Business Committee. “It’s really critical that we look at all of our programs from that lens of equity and make sure we’re reaching our underserved populations.”

Biden’s most high-profile pick has been Janet Yellen to be Treasury secretary, the highest-ranking economic policymaker in the Cabinet. The former Federal Reserve chair was easily confirmed in January as the first woman to hold the post.

Her legacy as Fed chair was defined in large part by the Fed’s incremental rise in interest rates and the completion of the outstanding post-2008 banking reforms. She was widely hailed as an effective leader and independent regulator. Then-President Donald Trump nearly renominated her in 2017 before choosing Jerome Powell, a Republican.

But whereas the Fed insists on having independence from political persuasion, the Treasury Department is tasked with implementing the president’s financial and political agenda.

Biden has pledged to take action to combat global warming and Yellen said in her confirmation hearing that one of her top priorities was to address risks that climate change poses to the financial system and the broader economy. She also pledged to implement a beneficial ownership database to combat money laundering and restart the Financial Stability Oversight Council’s working groups to examine hedge fund leverage and illiquid mutual funds.

Todd Harper joined the NCUA in 2019 and was widely expected to succeed former Rodney Hood as chairman should Biden prevail in the 2020 election. And on Jan. 25, Biden made it official.

The reason for Harper’s selection may be its expediency. Already a Senate-confirmed member of the NCUA board, Harper could be sworn in as chairman without any further action from the Senate. Trump implemented a similar changing in leadership in 2017, naming then-NCUA board member Mark McWatters as chairman in place of then-Chairman Rick Metsger.

Harper said he was committed to thorough debate and identifying “win-win compromises” to issues facing the board.

“As NCUA board chairman, I will continue to focus on four policy priorities: capital and liquidity, consumer financial protection, cybersecurity, and diversity, equity, and economic inclusion,” Harper said in a statement. “Each of these priorities are vital in responding to current economic and marketplace realities.”

Dodd-Frank created a position on the Federal Reserve Board meant to direct and manage regulatory issues. That position, vice chairman for supervision, was left vacant throughout the Obama administration for political reasons, but the Trump administration filled it in October 2017 with Utah financier Randal Quarles.

Quarles’s approach to banking rules has been consistent throughout his tenure: making the rules more transparent and efficient without reducing their efficacy in preventing another crisis in the banking sector. But critics have said the cumulative effect of the many changes he has overseen has been primarily a benefit to banks.

Many of the changes Quarles has overseen have been dramatic. The Fed’s stress testing regime — among the most important supervisory innovations to emerge from the 2008 financial crisis — has gone from an annual to a biannual exercise for most banks and consolidated many of the minimum capital requirements into a “stress capital buffer.”

And after the passage of the 2018 regulatory reform bill shepherded by then-Senate Banking Committee Chairman Mike Crapo, R-Idaho, the Fed embarked on a tiered system for applying many post-2008 capital and liquidity rules.

The Biden administration hasn’t articulated a firm stance on many of the core prudential requirements that the Fed and other bank regulators oversee, but it stands to reason that it will want to go in a different direction when Quarles’s term expires in October. Quarles’s term as a Fed governor lasts until 2032, so he could stay on the board.

A holdover Trump appointee, Powell will lead the U.S. central bank until at least February 2022.

After Trump considered a range of candidates for the post — including reappointing Yellen — Powell got the nod in large part because he was the lone Republican already serving on the Fed board. Trump frequently and publicly expressed regret with that decision — to the point where he reportedly considered firing Powell.

But Powell’s technocratic approach made him a popular figure in finance. His response to coronavirus pandemic made him still more popular with the general public, and his chances of renomination, once considered a remote possibility, now seem much better.

Powell would face competition potentially for the post from the likes of current Fed Gov. Lael Brainard or other Democratic appointees that Biden could name to the board. But reappointing Powell could also give Biden some bipartisan credibility and return to an erstwhile tradition of having presidents reappoint prior administrations’ picks for the job.

Jelena McWilliams’s five-year term as chair of the Federal Deposit Insurance Corp. expires in 2023, and shortly after the November election she committed to sticking to her post. But the latter half of her term will likely be very different from the first half.

The FDIC board is made up of five members: the chair, vice chair, a third inside board member, the comptroller of the currency and the director of the Consumer Financial Protection Bureau. Former Obama FDIC Chair Martin Gruenberg remains on the board after his time as chair ended in 2017. When Biden’s picks for OCC and CFPB are confirmed, Democrats will have a majority on the board.

How the FDIC's agenda will change after Democratic nominees constitute a majority is unclear. The FDIC chair has always controlled the board's agenda, but a little-known provision in the FDIC's governing structure allows any two members of the board to request a special meeting, and members can move to vote on a policy during meetings.

Whether the chair must or would entertain a motion under such circumstances is unclear, because members of the FDIC board have never attempted to wrest the agenda from the chair before, and it is unclear what would happen if they tried during the remainder of McWilliams' term.

The most likely outcome is that members will attempt to avoid a bare-knuckle brawl over the meaning of the board's bylaws and concentrate on areas of agreement. But it is also possible that these dynamics lead to many things not getting done, with the chair lacking the votes to push through her preferred policies and the remaining board members lacking the authority to bring their preferred policies up for a vote.

Clarification: An earlier version of this story indicated that any two members of the FDIC governing board could bring an item up for a vote. The FDIC's governing structure could allow any two FDIC board members to request a special meeting and make a motion to bring items up for a vote, but that tactic has never been used to create policy without the chair's approval.