Hoenig Wins Wide Support for FDIC Nomination

WASHINGTON — The freeze on confirming picks to the Federal Deposit Insurance Corp.'s board appears to be melting.

Following a stretch of either delayed nominations or pending votes in the Senate, lawmakers from both sides of the aisle were effusive Thursday in their praise of Thomas Hoenig, the nominee for the FDIC's No. 2 post.

Following Hoenig's confirmation hearing, Sen. Richard Shelby, the top Republican on the Senate Banking Committee, voiced support for quick approval of not only Hoenig for FDIC vice chairman, but also of Martin Gruenberg as FDIC chair and Thomas Curry as comptroller of the currency.

"I'd like to move them all together," Shelby told reporters. "The sooner we can get these nominees up, vote on them, I hope to do it before we leave here in the fall."

The board seats have been in limbo for a while. Although both parties have been supportive of certain appointments, Senate votes on nominees have been few and far between. Gruenberg has held the position of acting chairman since former agency chief Sheila Bair left in July, while John Walsh has served as acting comptroller since August 2010. Curry now sits on the board as an independent director, but if confirmed as comptroller would switch seats. (The Banking Committee approved Gruenberg and Curry in September but they have not yet been approved by the full Senate.)

Shelby signaled support for moving Gruenberg, Hoenig and Curry as a package on the Senate floor, while leaving aside debate on perhaps the most contentious nominee — Richard Cordray as director of the Consumer Financial Protection Bureau, who would also hold an FDIC seat — which has added more uncertainty to the board's makeup. Many GOP senators have opposed confirmation for anyone to run the bureau absent changes to its structure. Speaking of the three less controversial nominees, Shelby said, "I support them all — if we can get our package through."

With the FDIC responsible for implementing many key provisions of the Dodd-Frank Act, members of the Senate panel said filling out the agency's board of directors is crucial.

"Given the FDIC's new responsibilities and powers to unwind failing financial firms to prevent systemic problems, ensuring that its board is operating at full strength is a top priority," said Sen. Tim Johnson, D-S.D., the Banking Committee's chairman.

As the two likely leaders of the FDIC, Gruenberg and Hoenig both have strong records of supporting community banks, and Hoenig's past vocal criticism of "too big to fail" as president of the Federal Reserve Bank of Kansas City is in step with the FDIC's efforts to make bailouts less enticing through its new resolution authority. But, before he was nominated to the FDIC post, Hoenig also expressed doubts that the wind-down facility could be effective.

Asked by Sen. Bob Corker, R-Tenn., about the resolution authority, Hoenig said making it work is "one of the major challenges that the FDIC in particular has ahead of" it. A better assessment of the new facility, he added, will likely not come until it is first tested.

"We will find out only when the time comes when we have to execute these actions to deal with a very large institution," Hoenig said. "It's not magic, it's going to take a lot of hard work between now and what will hopefully be a long time in the future."

Corker cited concerns about Hoenig's nomination that the senator has heard from large banks. While community banks cheered the choice, Hoenig's past criticism of the systemic risks posed by large institutions has made some big banks uneasy.

"I'm not against big. I've said that several times. I'm against too big to fail," Hoenig said. "Too big to fail does impact the taxpayers. What my concern has been, and I've voiced this, is that if you take the safety net and you place it underneath these institutions and give them and their creditors protections that they know or perceive strongly are in place, then they do increase the risk."

He said a key requirement for large firms following passage of Dodd-Frank is crafting living wills — internal resolution plans meant to guide the FDIC in a hypothetical wind-down — that indicate the firms themselves are manageable and know their risks. Under the new law, regulators can force structural changes at institutions whose livings wills are deemed inadequate.

"It's incumbent upon these institutions to understand themselves and their risk profile and how much capital they have. It's very important that the … Federal Deposit Insurance Corporation understand these institutions," Hoenig said. "The burden is on [companies] to show that they are manageable, that their risks will not impact the taxpayer in the future. That's capitalism."

Noting his "common interest" with Gruenberg in community banks, Hoenig said he would expect the two to have a good working relationship.

In response to a question from Shelby, Hoenig said an important job for the regulators is to help community banks assess the costs of new regulations.

"One of the challenges that the regulatory authorities have is to inform community banks — all banks, but community banks in particular — in terms of how new regulations are put in place, to get them at least pointed in the right direction so that they control some of those costs," he said.

Hoenig may be the lynchpin to making progress on appointments. With the Obama administration limited to choosing just three members of its party for the five-member board, the nominee for vice chairman and a fifth director's post yet to be named are typically submitted for consideration by the Republicans. If the opposition party can make a favored choice for its slots, its members are more likely to back the administration's nominees.

If Thursday's hearing was a guide, Hoenig has strong support among lawmakers.

"It's always appealing to me that while his positions are thoughtful they have not always been popular," said Sen. Jerry Moran, R-Kan. "We as elected officials could learn something from that role model."