What Gary Cohn's departure from the Trump administration means for CUs

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WASHINGTON — Financial institutions are losing a pillar of stability within the Trump administration with the departure of Gary Cohn as director of the White House’s National Economic Council.

While many others within the president's inner circle have quit or been forced out in recent weeks, few directly impacted financial services policy. Cohn is different.

The former Goldman Sachs banker helped usher in a tax cut bill, recruited industry-friendly regulators and pushed back against protectionist trade policies financial institutions oppose. He also championed a regulatory relief bill for banks and credit unions that the Senate is in the process of passing.

“I’d like to think Gary Cohn was sitting in the White House with credit union industry briefing papers all around him,” quipped Dennis Dollar, a former NCUA chairman and a credit union consultant based in Alabama. “We will miss his active voice in the administration for credit unions.”

The reality, however, noted Dollar, is that the Trump administration is “focusing on bigger economic fish, in their view, but they did the credit union industry a good turn by putting a solid free-market thinker like Mark McWatters in place as NCUA chairman.”

Former National Economic Council Director Gary Cohn and President Trump
U.S. President Donald Trump, center right, and Gary Cohn, director of the U.S. National Economic Council, center left, smile during a press conference with cabinet members and Republican leadership at Camp David in Thurmont, Maryland, U.S., on Saturday, Jan. 6, 2018. Donald Trump said he’s a "very stable genius," a day after a new book about the president's first year in the White House -- dismissed by Trump as "fiction" -- claimed that many of his top aides and confidants consider him unfit to hold office. Photographer: Chris Kleponis/Pool via Bloomberg
Chris Kleponis/Bloomberg

The impact of Cohn’s departure may depend on how quickly and who is picked as his replacement.

“This could be a problem for nominations, especially if someone else is named in a reasonably quick matter and clears out the NEC,” said Brandon Barford, a partner at Beacon Policy Advisors. “Then this will have a huge impact on nominations.”

If current NEC staffers such as Andrew Olmem, who works on financial policy, and Shahira Knight, deputy director of economic policy, depart, it could signal even bigger changes in store, and make bankers even more anxious.

Trump adviser and economist Larry Kudlow has long been seen as a potential candidate to join the administration.

Ian Katz, a policy analyst at Capital Alpha Partners, said in a note to clients that if Kudlow or another free-market champion were picked, “investors could get over the loss of Cohn quickly.”

“But if we go several days without news of a replacement, investors could get edgy,” Katz said.

Speaking to CNBC after the New York Times broke the story of Cohn's departure, Kudlow said, “Lots of people come to the White House and like these jobs and life will go on. I don’t want to push the panic button.”

Barford added that Treasury Secretary Steven Mnuchin may gain more influence with Trump.

"He is one of the longest-serving people with Trump and as other people leave, those that have been around longest have his ear still and will get more airtime," Barford said.

But there's one set of nominations, observers said, that is so overdue that Cohn's departure may not have an impact on them: the two open seats for the NCUA board. And until the president comes forward with nominees for those positions, said Dollar, it’s “unlikely that there will be much credit union talk in the West Wing. Cohn’s departure won’t change that reality.”

Dollar further asserted that what's more important right now is who serves in the Office of White House Personnel, since “that is where the majority of the NCUA board will be vetted before nomination and, of course, who is nominated to serve as CFPB director.”

Consequently, Dollar said he can’t see Cohn’s departure “impacting either of those situations.”

Geoff Bacino, a former NCUA board member and a partner at Bacino & Associates in Washington, said the “only real issue” now is if Cohn’s successor has any issues with credit unions.

“As far as I knew, Gary Cohn was agnostic on credit unions, and our issues rarely rise to the level of someone like Gary Cohn,” Bacino added.

Shift in trade policies?

Others also said Cohn has already built policy momentum within the White House.

“His impact will continue to be felt not only as the Trump tax cuts take hold, but also as Congress considers Dodd-Frank reforms that reflect his input,” said Daniel F. C. Crowley, a partner K & L Gates. “He will have helped establish the precedent that financial regulation can be continuously reevaluated on a bipartisan basis.”

While Cohn had been voicing support for the regulatory relief bill led by Senate Banking Committee Chairman Mike Crapo, R-Idaho, his departure likely won’t jeopardize the legislation. Despite pressure from progressives, moderate Democrats continue to support the bill, which will enable it to pass the Senate. (Whether it can become law likely depends on whether the House pushes for changes which the Democrats could not support.)

But Cohn’s departure does signal a shift in trade policies. Cohn is said to have opposed Trump's proposal last week for tariffs on aluminum and steel. According to a Bloomberg story on Tuesday, Cohn rebuffed a direct request from the president to support the move. Hours later, Cohn quit.

“The timing of [Cohn's] departure suggests that the trade protectionists have won a decisive victory inside the White House,” said Isaac Boltansky, an analyst at Compass Point.

Jaret Seiberg, an analyst with Cowen Washington Research Group, called Cohn "the most important and powerful pragmatic, pro-business member of the president's inner circle. His departure gives conservatives and protectionists much more influence over White House policy."

Cliff Rossi, a finance professor at the University of Maryland's Robert H. Smith School of Business, said, "Gary Cohn was very well respected for pushing through the tax cuts, but obviously Cohn's view on tariffs differs."

The tariffs are also unpopular among bankers, who fear they will provoke an international trade war.

“There was some unhappiness between them for some time and the tariffs were enough of a reason for him to move on," said Rossi, a former economist at the mortgage insurer Radian and former chief risk officer at Citigroup.

Cohn had been planning a meeting with Trump and businesses that would be harmed by the tariffs, but that has now been called off, according to published reports.

In the meantime, banking professionals are left to see what happens next.

“Cohn is only one person, but his departure will have an outsized impact in Washington and Wall Street," Boltansky said.

Victoria Finkle, Kate Berry and Palash Ghosh contributed to this article.

This article originally appeared in American Banker.
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Financial regulations Regulatory relief Regulatory reform Dodd-Frank Gary Cohn
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