WASHINGTON — President Trump has shown he is willing to break long-established Washington practices — an attitude that could trickle down into the nomination process for federal regulators, including board members on the Federal Deposit Insurance Corp.

By law, the five-member FDIC board cannot include more than three members of the same political party. As a result, administrations typically work out agreements with the Senate leaders of the opposing party, allowing them to make two picks in order to smooth the confirmation process.

But there are doubts about whether that will continue to be the case after the Senate invoked the so-called nuclear option that allows a simple majority to confirm any nominee.

“If this was a normal administration, the possibility would be low that the status quo would change even with elimination of the filibuster for nominations,” said Jaret Seiberg, managing director of Cowen Group. “The wild card is that the Trump administration is unlike anything that we have seen in a very long time.”

President Donald Trump
“The wild card is that the Trump administration is unlike anything that we have seen in a very long time," an analyst says. Bloomberg News

In the past, the White House had an incentive to give the other party a say in choosing some nominees because it became a quid pro quo to ensure its own choices could sail through the Senate confirmation process.

“Often, these nominees are 'paired' with a majority nominee,” said Aaron Klein, a fellow in economic studies at the Brookings Institution. “You want to get your person, you pick my person.”

That was the case in 2012 when the Senate confirmed FDIC Chairman Martin Gruenberg, a Democrat, at the same time as Vice Chairman Thomas Hoenig, an independent chosen by Republicans. That was a year before Senate Democrats invoked the nuclear option to eliminate the ability to filibuster any nominees except those for the Supreme Court. Earlier this year, Senate Republicans eliminated the ability to filibuster high court nominees as well.

Some fear the nuclear option has taken away the incentive to consider the minority's wishes, since the majority party can act unilaterally.

“It makes confirming people easier and it might mean that you'll get more controversial nominees,” said Justin Schardin, a fellow at the Bipartisan Policy Center. “That could be on both sides of the aisle.”

It's not just the fate of the FDIC at stake. Other agencies, including the Federal Reserve Board and National Credit Union Administration, cannot be dominated by members of the same political party.

Still, some are optimistic that the Republicans have other incentives to avoid scrapping the tradition.

For one, though the Republicans can approve any nominee they want, killing a filibuster is a complicated process that can eat up valuable legislative calendar days. If Republicans want to get all their nominees through, they will have to pick their battles.

“It really comes down to how much time they want to spend on this, and the calendar is already really backed up on nominations,” said Ed Mills, a managing director at FBR Capital Markets. “Nobody wants to spend time on a filibuster of a FDIC board member.”

There have been no indications that Senate Republicans — who extended the nuclear option for Supreme Court nominees last month — are interested in starting a fight over FDIC board nominees.

“So far they have abided by tradition,” said a bank lobbyist, speaking on the condition of anonymity. Senate Minority Leader Charles Schumer "has been able to talk about who his nominee was going to be.”

But partisan tensions are also hot. Schumer is a leading critic of Trump and was one of only six senators to vote against the confirmation of Transportation Secretary Elaine Chao, who is the wife of Senate Majority Leader Mitch McConnell, R-Ky.

And the FDIC itself has grown into a more contentious agency since the financial crisis.

“Traditionally, the FDIC would be a good place to make a deal,” an industry source said. “But now with the additional responsibilities of Dodd-Frank ... it's a bit more influential and politically sensitive than it had been in the past.”

If the administration wants to keep Democrats off the FDIC board, it has another card in its deck. Trump could simply delay nominating non-Republican board members indefinitely.

“There is no requirement that the president ever nominate anyone,” Mills said.

All these considerations are likely to affect just two seats on the FDIC board: the vice chairmanship of the agency, which is currently filled by Hoenig; and an independent director seat, which has been empty since the resignation in 2015 of Jeremiah Norton, a Republican and former JPMorgan banker.

The other three seats, filled by the heads of the FDIC, Consumer Financial Protection Bureau and Office of the Comptroller of the Currency, are typically picked by the party in power.

Because of the intricate calculus involved in ensuring the balance of the board, and the slow pace of Trump’s nomination process thus far, it is unclear exactly how this will play out.

But ultimately, if Republicans choose to forgo tradition and ignore the wishes of Democrats in this process, they could set a precedent that would harm them in the long run.

“The majority of today is the minority of tomorrow,” Klein said. And “when regulatory agencies that are boards can achieve bipartisan buy-in in the regulatory process, it usually achieves a better product and sometimes a more durable one.”

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