WASHINGTON — As Thomas Hoenig and Jeremiah Norton step into their new Federal Deposit Insurance Corp. roles on Monday, the dynamic for the agency's board could significantly shift.
For years, the three internal directors at the agency — then chairman Sheila Bair, Vice Chairman Martin Gruenberg and independent member Thomas Curry — have been largely united, even when board members from the two outside agencies have disagreed.
But with Bair gone, Gruenberg running the agency and Curry now at the Office of the Comptroller of the Currency — and two new Republicans sitting on the board — observers are waiting to see how the board's working relationship will change.
The camaraderie between Bair and Gruenberg "was remarkable and a bit unusual given the overall climate; they worked seamlessly," said Ken Guenther, former president for the Independent Community Bankers of America. "You don't assume that close of a working relationship."
While the vast majority of FDIC board votes are unanimous, each board can have its own peculiar alliances and challenges. Before she stepped down, Bair, a Republican, was particularly aligned with Gruenberg, even though they were from different parties. But on previous boards, the chairman and a No. 2 have disagreed on policy.
The spotlight is now on Gruenberg, the agency's acting chairman, and his two new lieutenants, who have the authority either to defer to or question his agenda.
"It will be more work to get consensus when you have a full board, but it's not necessarily a bad thing to have different viewpoints," said V. Gerard Comizio, a partner at Paul Hastings and a former official at the Office of Thrift Supervision. "It's like a rock and roll band made up of members with different viewpoints who hopefully play good music together."
Observers are particularly watching how Gruenberg will work with the presumptive vice chairman, Hoenig. (Technically, Gruenberg remains vice chair, but has been nominated as permanent chairman. Hoenig has been confirmed as a board member but not yet as vice chair).
As the No. 2, Gruenberg tended to be low-key in meetings and supportive of Bair. In many respects, Hoenig, an independent, has past views in line with the FDIC, such as his interest in community banks and bank supervision. Yet he has also criticized provisions of the Dodd-Frank Act, a law the FDIC has a key role in implementing, and is generally outspoken. At the Fed, Hoenig was known for speaking his mind when he disagreed with central bank policy.
Meanwhile, less is known about Norton, a former official at JPMorgan Chase & Co. who went to Treasury during the Bush administration and served under former Secretary Henry Paulson during the crisis.
Wayne Abernathy, the head of financial institutions policy and regulatory affairs at the American Bankers Association, said the FDIC board is always "collegial" and rarely are votes contested. But that is often because of the work done behind the scenes to build consensus.
"Because of that you end up with policies that are sound and broadly embraced by the public once they're announced," Abernathy said. "What we have here is the kind of structure Congress intended when it established the FDIC board in this way."
But Guenther said problems can arise when the chairman and vice chair don't see eye to eye.
"In the polarized, political world that the regulators are working in, carrying forward the tradition of Sheila Bair and Marty Gruenberg through to the tradition of Marty Gruenberg and Tom Hoenig is terribly important to the FDIC, to fair-handed regulation of the many banks that the FDIC regulates and to the financial system as a whole," he said.
Many said the prospects for board members to work together has little if anything to do with political party.
"Counting the D's and the R's is not a way to answer questions about the direction of financial policy," said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. "Often, in fact, what's striking about regulatory policy is the hands-across-the sea agreement between left wing Democrats and right wing Republicans in their populist fervor to restructure big banks. It may be the only thing on which they can agree. On the other side of the debate … centrist Democrats and centrist Republicans agree more. They're a bit more 'Wall Street.'"
John Douglas, a former FDIC general counsel and now a partner at Davis, Polk & Wardwell, said a previous set of policy positions can be altered when dealing with the technical issues facing the FDIC.
"It's easier to be a critic on the outside than when you're on the inside and what you do has a real impact on our financial structure," Douglas said. "My impression is [Hoenig] is a very thoughtful professional and that he will bring that to his job on the board.
"These are financial, apolitical, nonpartisan issues. We don't want our deposit insurance system to go insolvent. We want community banks to be able to extend credit. We want our big banks to operate safely. These aren't political positions."
But board members — regardless of party — have still butted heads. While Bair was never questioned, at least in public, by Gruenberg or Thomas Curry — then the third inside FDIC board member — she at times was challenged by then-Comptroller of the Currency John Dugan, another Republican who held a board seat.
In other cases, a chairman has relied on outside directors — board members who lead other agencies — to issue policy with which the other inside directors disagree. In 2005, then-Chairman Donald Powell needed support from fellow Republicans Dugan and Office of Thrift Supervision Director John Reich for a proposal easing requirements for state-chartered banks that branch across state lines. Gruenberg, then the vice chairman, and Curry were both opposed. (The proposal was never finalized.)
"The outside directors tend to be more oriented to the banks and charters that they regulate every day of the week as agency managers," said Comizio. Inside directors, he added, are "looking at the bank regulatory system in terms of a more day-to-day impact on the Deposit Insurance Fund."
William Isaac, who chaired the FDIC board in the eighties, said support for the chairman can swing in both directions.
"The chairman can almost always rely on the two inside directors to be supportive if there is a disagreement with the comptroller's office, which there is from time to time," he said. "If the chairman has trouble getting support from the inside directors on an internal matter, they can almost always look for support from the two outside directors.
"I occasionally would have an issue with an inside director on an administrative issue about running the FDIC. The comptroller would almost always support the chairman in that case, who is the chief executive."
Some said each board is idiosyncratic.
Douglas noted the rules setting a limit on the number of members from the same political party are only "relevant in terms of having Congress feel comfortable with the agency. It's an independent agency."
"It's not necessarily relevant," he added, "in terms of what the agency does. They would probably do the same thing if they were all Democrats or all Republicans."