Biden's up-and-down year for regulatory appointments

December 29, 2022 1:57 PM

WASHINGTON — The Biden administration got off to a rocky start for financial policy appointments in 2022. Yet near the start of 2023, only one major financial policy appointment remains — a notable turnaround that sets the administration up to, finally, move forward on some of its financial policy priorities.

Republicans have, by and large, objected to the Biden administration's candidates, digging up controversies that sank a few nominations in an otherwise successful slate — a significant feat for a minority party. Occasionally, Republicans were able to convince swing votes on the Democratic side, notably from Sen. Joe Manchin, D-W.Va., over concerns about fintech policy and climate risk.

While that strategy succeeded in keeping the more liberal element of the Democratic party out of these positions, Democrats still ended the year with a chairman (and their choice of Republican board members) at the Federal Deposit Insurance Corp., and a financial policy czar at the Federal Reserve.

The Biden administration still has one vacant seat — the head of the Office of the Comptroller of the Currency — but the current lineup should be enough for Democrats to make headway on issues related to climate change, crypto, fintech and other objectives.

For that final seat, analysts expect that the Biden administration will aim to nominate someone who is a person of color, a woman or both. Republicans have blocked both female candidates the Biden administration has put forward for bank regulatory posts, one of whom was also a person of color, though two Black nominees were confirmed for economic policy positions at the Fed.

Starting off on the wrong foot

Senate Committee on Banking, Housing and Urban Affairs

At the start of 2022, the Biden administration was reeling from a loss. Cornell University law professor Saule Omarova pulled out of the running for comptroller after facing staunch opposition from the banking industry and congressional Republicans.

Omarova withdrew in December 2021, handing Democrats a defeat right before the new year. Republicans had questioned Omarova's academic work as a student in the former Soviet Union, speculating about what they said were Marxist leanings, and had called her views too extreme for someone overseeing the federal banking system. Her Democratic supporters on the Hill, meanwhile, called those claims baseless, and accused Republicans of "red scare McCarthyism."

The reverberations of that battle set the tone for the Biden administration's nominations in 2022. The administration hasn't floated any new names for the OCC post since, and current acting Comptroller of the Currency Michael Hsu has said he expects to remain at the helm for the "foreseeable future."

A second setback

Republicans Stall Fed-Nominee Votes Over Raskin Opposition

Ken Cedeno/Bloomberg

Another key post, the Fed vice chair for supervision, was also a tricky spot for the Biden administration to fill.

The Democrats' slate of Fed candidates stalled over concerns about Sarah Bloom Raskin's views on climate finance and her role in helping a fintech company gain access to a Fed account.

In March, Bloom Raskin withdrew her nomination, allowing the Senate Banking Committee to move forward with the Biden administration's other four Fed nominees, including Chair Jerome Powell and Vice Chair Lael Brainard.

"There is hard and urgent work ahead for the Federal Reserve," Raskin wrote in her withdrawal letter. "If I step away from this confirmation process, there can be no excuse left for a continued boycott of the Constitution's 'advice and consent' process and the Senate's corresponding refusal to attend to our nation's real economic needs."

The move came a day after Sen. Joe Manchin, a centrist Democrat from West Virginia, said he would not support Raskin's confirmation if a vote were brought to the Senate floor.

In her letter, Raskin accused Republicans of holding the other nominees "hostage" and turning the debate over the financial risk of climate change into a "tawdry political issue." She also reiterated her regulatory stance and pushed back against the idea that her views were radical.

"It was — and is — my considered view that the perils of climate change must be added to the list of serious risks that the Federal Reserve considers as it works to ensure the stability and resiliency of our economy and financial system," she wrote.

Progressives take what they can get with Michael Barr

Ting Shen/Bloomberg

With two nominations tanked, the Biden administration settled on a safer option. Biden nominated Michael Barr, a former Treasury Department official and dean of University of Michigan's public policy school, as vice chairman of supervision at the Federal Reserve.

Barr went through the Senate confirmation process relatively easily, garnering the support of Republican Sens. Pat Toomey of Pennsylvania, Tim Scott of South Carolina, Mike Rounds of South Dakota, Cynthia Lummis of Wyoming and Jerry Moran of Kansas on the Senate Banking Committee, along with centrist Democrats.

It was a hollow win for progressives in the Democratic party, however. Progressives had previously opposed Barr as the potential pick for comptroller over his role as an advisor to Ripple Labs.

Still, the blows dealt by Republicans to Biden's previous appointments were starting to cut into Democratic policymakers' abilities to implement their agenda, and Barr's confirmation slipped through.

Since being confirmed, Barr has pursued a largely moderate policymaking and personnel agenda, appointing non-offensive career staffers to key roles.

He has joined other Fed officials, including Fed Gov. Michelle Bowman, in talking about the need for nonbank regulation, and has cautiously hinted that a holistic review of banks' capital framework could be in order.

Misstep at the FDIC?

Graeme Sloan/Bloomberg

In September, the White House announced two Republican nominees for the board of the Federal Deposit Insurance Corp., sending waves of confusion through financial policy circles.

The choice of Travis Hill as vice chair seemed like it could potentially unseat then-acting Chairman Martin Gruenberg, since FDIC bylaws say the vice chair leads the agency in the absence of a Senate-confirmed chair.

While the White House said that a nomination for chair was "forthcoming," it would not announce its pick until November. Back in September, sources familiar with the matter said the White House had simply not yet chosen anyone.

The Republican nominees — particularly Jonathan McKernan, who most recently worked under Senate Banking Committee ranking member Sen. Pat Toomey, R-Pa. — appeared to be chosen to grease the wheels in the Senate, paving the way for an eventual Democratic chair nomination. Hill previously served as policy chief for former FDIC Chair Jelena McWilliams, who was popular among Republican lawmakers.

Still, it was a puzzling move by the White House, and may have ultimately limited the administration's nominations to already-vetted candidates.

Sen. Sherrod Brown, D-Ohio, was unlikely to move the two Republican nominees without an accompanying chairman, but if Republicans had won back the Senate, then it's possible they could have put pressure on the White House to put forward the two Republicans in the new year, and used their leverage to get a more favorable pick for chairman.

The once and future chairman

Sarah Silbiger/Bloomberg

Ultimately, the White House nominated Gruenberg, the longtime FDIC official who had previously been confirmed to lead the agency.

Earlier this month, the Senate confirmed Gruenberg to the post in a 45-39 vote. The two Republicans nominees were confirmed by a voice vote, giving the agency a full five-member board for the first time since 2015.

Although Gruenberg has led the agency since the departure of McWilliams at the start of 2022, he goes into next year with a stronger mandate to make the kind of changes he's advocated for years, including stricter capital requirements for large regional banks, tougher merger policies and efforts to guard the banking system from crypto risk.