WASHINGTON — With a reputation as a contrarian at the Federal Reserve Board, Thomas Hoenig may in fact find his opinions more in vogue at the Federal Deposit Insurance Corp., observers said Friday.
Nominated as FDIC vice chairman one month after leaving the Fed, Hoenig — if confirmed — is not expected to be a timid voice at his new agency as it implements key reforms of the Dodd-Frank Act. But while his outspoken style could shake up the FDIC board, experts said Hoenig's support for strong examinations and community banks, and abhorrence of "too big to fail", make him a good fit for his new job.
"He is going back to his roots, really," said Robert Litan, a senior fellow at the Brookings Institution and research chief at the Kauffman Foundation.
The White House's announcement late Thursday that it had chosen Hoenig struck many by surprise. Yet congressional Republicans had just as much to do with the pick if not more, according to sources. Appointed FDIC vice chairmen, one of two seats on the FDIC board not belonging to the head of a regulatory agency, are typically recommended to presidents by members of the opposition due to complex rules about board members' party affiliations.
As head of the Federal Reserve Bank of Kansas City, from which he stepped down Oct. 1, Hoenig — opposed to bailouts and recent steps by the Fed to prop up the economy — was known for his dissenting votes on the central bank's Federal Open Market Committee. And he has openly questioned the effectiveness of Dodd-Frank in solving the too-big-to-fail problem.
Similarly, in his new role "there won't be a lot of beating around the bush," said Mark Olson, a former governor on the Fed board and now co-chairman of Treliant Risk Advisors LLC. "When he is for something or against something, he will let everybody know. There's no duplicity."
Observers said that legacy makes it likely he will disagree at times with his new colleagues, including presumptive FDIC Chairman Martin Gruenberg, who as vice chairman was largely aligned with former FDIC chief Sheila Bair. (Gruenberg, now running the FDIC on an acting basis, is also awaiting Senate confirmation for the chairman's job.)
"These are two pretty independent thinking people and Tom has demonstrated himself to be an independent thinker in terms of bank supervision and in the context of monetary policy," said Oliver Ireland, a partner at Morrison & Foerster and a former Fed attorney. "They're going to have different positions on things. I think that's good on a board. One of the benefits of boards is you get different views and I think you are going to get different views here."
Yet Hoenig's views about regulation also seem in line with those at the FDIC. His objections to the bailouts of institutions deemed too big to fail, as well as his beliefs in effective supervision and a vibrant community bank sector, are positions shared by many senior FDIC officials. Indeed, Hoenig has often cited as one of his mentors William Taylor, a former FDIC chairman.
"He's not a friend of too-big-to-fail obviously, that's been true for some time. He won't protect [banks]. But that's not what the FDIC is supposed to do," said former Fed Vice Chairman Donald Kohn. "It's supposed to enforce the law. I think he'll carry on in the tradition of the FDIC in that regard.
"I see him more in a traditional FDIC mode of thinking, so I don't see him as a major dissenter on the FDIC board about supervisory actions."
Of course, it is somewhat awkward for someone so skeptical of Dodd-Frank becoming the No. 2 at an agency key in implementing the law. Hoenig has questioned whether Dodd-Frank will end too big to fail. Yet he would be joining the FDIC as its sets up a system — envisioned by the law's authors as a defense against too-big-to-fail — for resolving failed firms.
But some experts said Hoenig may view his role not as a critic of the new system, but as a voice for the FDIC getting its resolution authority right, which would mean little if any relief for creditors of failed companies.
"He's now in a position to prove his skepticism wrong," said Litan. "He's now going to be a voting member and he's going to be a strong voice very likely saying: 'If you're a creditor of a nonbank, we're going to have to live up to the intent of Dodd-Frank.' There's a provision in Dodd-Frank that specifically says that nonbank creditors are to get no more protection than they would in bankruptcy. He will probably take a hard line."
Kenneth Guenther, the former head of the trade association that is now the Independent Community Bankers of America, said Hoenig and Gruenberg would likely be interested in the same goal.
"Assuming that … creative tension can be overcome, a powerful partnership could be built on both his and … Gruenberg's commitment to eliminate too big to fail in the context of a strong, ongoing federal deposit insurance system," Guenther said.
Meanwhile, the nomination signaled some progress in the prolonged attempts to fill vacancies on the FDIC board.
Republicans likely submitted Hoenig's name to the White House, thanks to a limit on the number of board members who can come from the president's party. Essentially, President Obama cannot name more than three Democrats to the board. The rules structure means the administration likely said it would support Hoenig's appointment if GOP members support the president's picks.
A Democratic Senate aide, who spoke on the condition of anonymity, said if Hoenig is approved by the Senate Banking Committee, he could be voted on by the full Senate as part of a package with both Gruenberg and Thomas Curry, the administration's choice to become comptroller of the currency and also assume one of the board seats.
Yet it is still unclear how that would affect the fifth and remaining board seat belonging to the director of the Consumer Financial Protection Bureau. The administration has nominated CFPB enforcement chief Richard Cordray to run the new bureau, but Senate Republicans have vowed to block any CFPB pick until the administration reforms how the new agency is structured.
