Pressure grows on administration to fill Fed, FDIC seats

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WASHINGTON — The Federal Reserve has become one of President Trump’s favorite targets. He frequently taunts Fed Chairman Jerome Powell, and recently even suggested that the U.S. central bank is a bigger threat to the economy than China.

But at the same time, the administration has struggled with filling two vacant seats on the seven-member Fed board, leaving many in Washington perplexed over why the process has stalled.

“This is another example of what one might likely call the idiosyncratic way that the Trump administration seems to operate,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. “They have pretty much broken all of the procedural rules and this is another example.”

Senate leaders say they are ready to consider any potential nominees, if only the White House would send over their names. And the Fed is not unique. The Federal Deposit Insurance Corp.'s board of directors effectively has two of its five posts unfilled as well. Martin Gruenberg is serving on an expired term, and another FDIC seat is vacant.

“They don’t seem to care about these agencies," Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee, said in an interview.

Senate Banking Committee Chairman Mike Crapo, R-Idaho, said he would like to be able to move forward nominees to fill the two Fed board seats, but said he has not been in communication with the White House in more than a month about potential names to fill the vacancies.

“I am hoping for them soon,” Crapo said. “I haven’t had any recent conversations with [the administration], like in the last month or two. … I know that they are working very aggressively at it as well, but I don’t know where exactly they are. … I know they’ve looked at several names, but I’m not pushing a particular candidate.”

To be sure, the impeachment inquiry against President Trump raises doubt about lawmakers' bandwidth to fill any regulatory jobs. But the process of filling the Fed seats has been particularly mired in problems.

The administration's prior attempts to fill the two Fed seats failed as potential picks encountered opposition.

Trump surprised observers last year by announcing his intent to nominate Nellie Liang, a Democrat who helped develop the Fed's post-crisis regulatory apparatus. Republican senators raised objections to her nomination and she withdrew from consideration.

Earlier this year Trump floated the names of Stephen Moore, a commentator and Trump presidential campaign adviser, and former presidential candidate Herman Cain. Both were seen as non-establishment picks and Trump allies, but they encountered a wave of criticism. Several Senate Republicans shut down the possibility of either Cain or Moore getting confirmed before they were even nominated.

Since then, the administration is said to be focusing on Christopher Waller, executive vice president at the Federal Reserve Bank of St. Louis, and Judy Shelton, a Trump economic adviser and frequent Fed critic. But the White House has yet to formally send their nominations to the Senate.

Brandon Barford, a policy analyst with Beacon Policy Advisors, said that some of the disinterest in filling personnel at the Fed could come from a lack of enthusiasm for the nominees.

Republican senators "don’t want to go against the president,” Barford said. “But at the same time they are not necessarily excited about Shelton, in particular.”

Typically, nominees that require Senate confirmation stay quiet as the confirmation process advances, but shortly after Shelton’s name was announced by Trump, she wrote an op-ed in The Washington Post critical of central banks that left some questioning if she could get enough votes supporting her nomination.

“Not only has the administration broken with the procedural norm in Fed nominations … the nominees have too,” Petrou said. “They have been putting in op-eds, going on TV, taking very strong policy positions, essentially weighing out what they would do as Fed governors.”

In the midst of an impeachment probe and just ahead of a presidential election year, some observers are skeptical that Congress will be able to fill the seats on the board. But the industry could pressure the administration and GOP leaders to fill the seats sooner if Sen. Elizabeth Warren, D-Mass., one of Wall Street's most vocal critics, continues rising in the presidential primary polls.

“I think it’s pretty clear that they are going to push for a finalization of the rules that are still in the pipeline and to fill those seats on the Federal Reserve Board because a Federal Reserve Board under President Warren would look very different than the Federal Reserve we have right now,” said Isaac Boltanksy, director of policy research at Compass Point Research & Trading.

An industry source who spoke on the condition of anonymity said senators could start to become more focused on getting the White House to announce nominees.

“I think everyone is going to say there needs to be a full slate of governors in case we end up with a new president,” the industry source said. "To the degree that you hear the industry get more concerned about it, you will start to hear members get more concerned about it. ... Why haven’t we seen these folks yet? Between now and Thanksgiving, let’s try to get some answers.”

Petrou said that while the Fed is still able to operate with two open board seats, the vacancies pose a challenge and mean more work for career staffers.

“The Fed does a great deal more than monetary policy and more than regulatory policy,” Petrou said. “All of the Fed governors have operational responsibilities. … It’s a huge amount of work … with the absence of a full board [staff work] becomes even more so.”

But Boltansky said that because the Fed is currently led by a Republican appointee in Powell, and still has a quorum, the agency’s ability to function means that filling the vacancies are less of a priority for Senate leadership.

“First and foremost," Boltansky said, Senate Majority Leader Mitch McConnell, R-Ky., "has prioritized judges, given that they have lifetime appointment. As long as the agency is functioning with a Republican on top, I don’t think there’s much urgency in the leader’s office.”

Meanwhile, the FDIC board is not at full capacity either. There are currently four board members: Chairman Jelena McWilliams, Gruenberg (a Democrat and former chairman), Comptroller of the Currency Joseph Otting and Consumer Financial Protection Bureau Director Kathy Kraninger.

But even though there is just one vacancy, the administration could nominate two board members since Gruenberg's term has technically expired. The FDIC board typically includes two members from the party other than the president, and one of those members serves as vice chair.

Brown has pressed the administration to nominate a full slate of members to the FDIC board, but said he has not heard anything about the administration’s progress on that front.

“It’s pretty incredible, so we’re still trying," he said.

Some analysts say that one factor slowing nominations is the fact that the Senate eliminated the filibuster for executive branch nominees under former Senate Majority Leader Harry Reid, D-Nev.

Before the filibuster was eliminated, nominees for financial regulators were frequently considered as a package in order to build bipartisan support for Senate confirmation.

Barford said that without the filibuster, there isn’t much motivation for a Republican administration to put forward nominees to hold seats reserved for Democrats at the FDIC.

“This is one of the prices that Democrats are paying for getting rid of the filibuster for nominees,” Barford said. “Now you don’t have to do that anymore. So it’s not surprising that there’s a lag on putting Democrats out there.”

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Career moves Policymaking Election 2020 Mike Crapo Sherrod Brown Donald Trump Jerome Powell Federal Reserve FDIC