WASHINGTON — Lawmakers were ostensibly there to discuss the nominations to lead the Consumer Financial Protection Bureau and the Securities and Exchange Commission, but the debate over "too big to jail" continued to dominate a Senate Banking Committee hearing on Tuesday.
Mary Jo White, the former prosecutor nominated to head the SEC, was repeatedly pressed on whether she would pursue large institutions if confirmed even as other senators raised questions about her past as a private-sector attorney representing big banks.
Richard Cordray, the current director and nominee to head the CFPB, meanwhile, largely won rave reviews even from Republicans who are holding up his nomination over separate concerns about the structure of the agency.
Following are the key moments of the hearing and what they mean for the future of the CFPB and SEC and the battle over large financial institutions.
White offers defense of "too big to jail" even while vowing to pursue wrongdoers.
White, a former securities lawyer, was clear that "there's no institution too big to charge," when asked about Attorney General Eric Holder's admission last week that some institutions are effectively too large to prosecute.
Yet she also offered a defense of sorts for why the government has to tread carefully against all large corporations, noting that pursuing criminal action against a firm could end up hurting employees and communities who had nothing to do with the wrongdoing that took place.
"We want our prosecutors making decisions in the public interest," White said.
How a prosecution might impact a firm's viability, and how a potential collapse might reverberate through the broader economy "is just part of the consideration and it should be, I think."
That said, she did not advocate for taking a light touch to big banks or any companies found to be engaging in illicit activity.
"Assuming you found wrongdoing, I think you proceed quite vigorously against, quite frankly, anyone that you find evidence of wrongdoing going on, but certainly, financial institutions," she said.
White added that the SEC does not have criminal powers but it can take other remedial actions that stop short of having a large collateral impact.
"Obviously, you don't want to have a two tiered standard for some institutions and not others," she said. "But I do think the deferred prosecution instrument, which has been used a great deal on a number of companies, was designed to be tough in terms of monetary sanctions, monitors basically everything but at the charge itself that might cause what the prosecutor may consider to be negative and very undesirable collateral consequences to the public interest."
Several Democrats suggested her past as a prosecutor should stand her in good stead.
"In the case of Ms. White, I know there are some who are concerned about her private sector experience," said Democratic Sen. Robert Menendez. "I remember her as a very tough prosecutor. I used a different word when we met, but I won't do that here.
Lawmakers voice concern about White's past as a bank lawyer.
Lawmakers also repeatedly turned to how White will avoid potential conflicts of interest given her work on behalf of the financial services industry — and her husband's current job as a prosecutor.
"We're concerned about the revolving door," said Sen. Sherrod Brown, D-Ohio.
White told the panel that she had been through a "rigorous process" in ensuring she was in compliance with all ethics and regulatory laws before the White House, the independent Office of Government Ethics and the SEC. She said her recusals would not prevent her from engaging in rulemaking.
"In general, I'm not recused from any SEC rulemaking matters or policy matters," she said.
She also offered a strong defense of her past role, saying it was her job to represent clients and do so to the best of her ability and that she would bring the same attitude to the SEC if confirmed.
"The American public will be my client, and I will work as zealously as possible for them," White said.
Ultimately, White seemed to receive strong support.
"Some have questioned your toughness as a regulator, whether you'd be able to hold accountable those sorts of folks that might have defended in the past and I would actually view your experience and expertise as an asset," said Democratic Sen. Jon Tester. "Why? Because if someone's going to commit a crime, my gut tells me that you might have a pretty good idea where the body was buried."
Republicans show they really like Cordray even though they won't confirm him.
If there's one consistent surprise watching a hearing featuring the CFPB's leader and Republicans that vigorously oppose the structure of the agency, it's how often GOP lawmakers praise Cordray.
"Mr. Cordray … I do appreciate the way that you've dealt with our office," said Republican Sen. Bob Corker. "And I do hope that over the course of the next short period of time, we're able to figure out a way for the entity to function in a manner that makes everyone on both sides of the aisle feel comfortable."
Cordray focused on the agency's accomplishments in meeting Dodd-Frank regulatory deadlines for new mortgage rules as well as gearing up to supervise nonbank entities such as credit card companies and debt collectors.
Despite the fact that many of those rules are contentious and broad-reaching, Republicans did not voice opposition to them. In fact, they appeared to feel Cordray had been doing well in a job he has held since President Obama recess appointed him in January of last year.
Republican Sen. Tom Coburn thanked Cordray for doing "a great job" despite dissension among committee members on the CFPB's structure.
"I know we're divided as a committee on that and I won't spend any more time in it, but I will compliment you," Coburn said. "I think you've done a wonderful job so far in carrying out your duties. "
Neither side gives ground on CFPB's structure.
Despite approving of Cordray personally, Republicans said they would not vote to confirm him until Democrats agree to make several structural changes, including replacing its single director with a five-member commission and subjecting it to the congressional appropriations process.
The committee's lead Republican, Sen. Mike Crapo, said the CFPB's structure "lacks this transparency and openness regarding its operations, budget and intended activities."
He specifically noted the agency spent more than $150 million on contracts and support services in fiscal 2012, representing almost half the money the agency received from the Federal Reserve and exceeded what was spent on personnel.
"There is no public accounting on how these monies on contracts and support services are being spent," Crapo said.
Cordray later noted in the hearing that the reason there was more spending for contracts than personnel was because most of it was paid to the Treasury Department to support the agency in its first year.
"We continue to contract with them to piggyback on their IT service and other things, as we're building an agency," he said, offering to provide specifics of each contract. "Over time, that is diminishing and will continue to diminish."
Cordray spent a majority of his responses ensuring that the agency was being held accountable to Congress and would remain transparent in its budgets. He noted the agency has testified more than 30 times in the last two years.
"As to our accountability to Congress, I always am accountable to you," Cordray said. "I have found congressional oversight to be both vigorous and meaningful and it keeps us in shape and it keeps us on our toes and it is something we're every responsive to and I personally have been responsive to and appreciate the value of that."
If Republicans are dug in, so are Democrats. Menendez called the holdup of Cordray's confirmation in order to subvert the CFPB a "dangerous slope."
"In the case of Mr. Cordray, I certainly hope that the ideological opposition to the entity, which received a majority vote in its creation by the Congress of the United States, doesn't continue to be the opposition to someone who is eminently qualified, who has been fair, who has been balanced, who has been transparent — all the qualities that you would want in the director of an office," Menendez said.
He was seconded by Sen. Elizabeth Warren, D-Mass., the founder of the CFPB, who attempted to rebut the GOP arguments by noting that other bank regulators, like the Office of the Comptroller of the Currency, have a similar structure to the consumer agency. She also questioned why the CFPB is the only regulator subject to a veto by the other banking regulators.
"I see nothing here but a filibuster threat against Director Cordray as an attempt to weaken the consumer agency," she said. "I think the delay in getting him confirmed is bad for consumers, it's bad for small banks, it's bad for credit unions and it's bad for anyone trying to offer an honest product in and honest market."
White vows to help SEC push out Dodd-Frank rules faster.
Lawmakers also repeatedly pressed White to help the SEC get out rules faster that were required from the Dodd-Frank Act and JOBS Act. In response, she promised it would be one of her top priorities.
"There's no higher priority that I have than moving the SEC along, frankly, under both the Dodd-Frank Act and the JOBS Act to get those regulations out as quickly as possible," she said. "I can't give you an exact date, but I guarantee you that I'm going to be focused on that if confirmed from day one."
In particular, White vowed to lawmakers to get out pending standards for broker-dealers and investment advisors and money market mutual fund reform.
Corker also questioned White on her commitment to the Volcker Rule to prevent banks from engaging in proprietary trading, saying the final rule must have "really bright lines" to ensure institutions can follow it.
"I'm totally committed to that and recognize the importance of both the mandate to bar proprietary trading, but also the permitted activities of market making as well as the hedging activities," White responded. "And again, I guess I'm listing everything I'm going to do the first day, but if confirmed … that is one thing that I'm going to turn my personal attention to."