What kind of regulator can Biden get past a GOP Senate?
WASHINGTON — Progressive Democrats had hoped a Joe Biden presidency would mean the selection of tough regulators to revive aggressive enforcement efforts and unwind Trump deregulation. But the tight margin in the Senate could complicate the appointment process.
Even though Biden was declared the winner of the presidential race Saturday, Republicans are close to maintaining control of the Senate. If they hold on, it would give GOP leaders the final say on approving the incoming president’s nominees for Treasury secretary and the financial regulators.
As a result, observers say, Biden would likely choose more moderate leaders for the Treasury Department and the regulators, giving comfort to bankers who had feared the potential of a “blue wave” election. He may also seek to avoid the Senate confirmation process altogether, some said, by naming interim regulatory chiefs under federal rules for acting appointments.
“The basic outcome is that it means the nominees will tend to be more moderate,” said J.W. Verret, an assistant professor of law at George Mason University and a former GOP congressional staffer.
After Biden’s election, the guessing game has already begun on who will be his pick as Treasury secretary. Some have mentioned Federal Reserve Board Gov. Lael Brainard as a possible candidate. Sen. Elizabeth Warren, D-Mass., a leader of the progressive left who had challenged Biden for the Democratic nomination, has reportedly pitched herself as a pick for Treasury.
Meanwhile, Biden could have a vacancy to fill atop the Office of the Comptroller of the Currency, and many expect him to fire Consumer Financial Protection Bureau Director Kathy Kraninger thanks to a Supreme Court case empowering presidents to replace CFPB chiefs at will.
On Monday, Bloomberg News reported that the Biden transition team had tapped Gary Gensler, an alum of Goldman Sachs and Treasury who formerly ran the Commodity Futures Trading Commission in the Obama administration, along with KeyBank executive Don Graves to vet financial regulatory appointments.
Observers said they expect a heavier consumer focus at the financial regulators under a Biden administration even with relatively moderate nominees.
“My gut feeling … is that you will see a change of tone at the top, a significant change of tone,” said Camden Fine, president and CEO of Calvert Advisors and former head of the Independent Community Bankers of America. “Biden will appoint persons who will enact what I would just in general terms call the Democratic philosophy, which is more consumer protection, tougher regulation for Wall Street, tougher capital regulations particularly for the too-big-to-fail banks, all of those kind of things.”
But the party breakdown in the Senate could set up contentious confirmation battles over Biden’s financial policy nominees.
Republicans effectively hold a one-seat advantage in the Senate, but it could come down to a few undecided races to determine ultimately which party has the majority. Sen. Thom Tillis, R-N.C., has a clear lead in his contest against a Democratic challenger, but the race isn’t declared over yet. The elections for both Georgia Senate seats, meanwhile, are headed for runoffs.
If the GOP holds its majority, Biden’s picks for the industry’s various regulatory bodies may require a more moderate approach to clear the Senate, said Bradley Rinschler, managing partner at the Dallas hedge fund Down Range Capital Management.
That means that it would be less likely Warren could become Treasury secretary — a selection that Rinschler said “would be a major punch to investors.”
Warren at Treasury "is the most feared thing by the banking industry,” Rinschler said.
Researchers for Goldman Sachs agreed that were the Senate to remain “majority Republican, … the status quo will largely persist, when it comes to bank regulation, as any nominees to run agencies will need to win support of some Republicans for confirmation.”
As with the choice for Treasury secretary, Republicans are unlikely to back a CFPB director that they see as too extreme.
Analysts widely agree that Biden may move quickly to fire Kraninger, the bureau’s current director, following the high court’s decision allowing presidents to fire CFPB chiefs even if there is no cause.
But whom the new administration picks to be Kraninger’s successor would depend on various factors. Senate Republicans may balk at a progressive pick such as Rep. Katie Porter, D-Calif., a former law professor at the University of California, Irvine School of Law, who studied under Warren. A more moderate candidate to lead the bureau, for example, would be Chris Peterson, who lost the election to be Utah governor and was a special adviser to former CFPB Director Richard Cordray.
A different pending Supreme Court case could enable Biden similarly to fire the head of the Federal Housing Finance Agency. Some analysts believe the incoming administration could remove FHFA Director Mark Calabria simply using the CFPB case as precedent.
Biden will also have the opportunity to nominate one member to the National Credit Union Administration board when Todd Harper’s term expires in August. However, Kyle Hauptman is still waiting on full Senate confirmation to fill Mark McWatters’s expired seat. If that remains stalled, Biden could quickly reshape the board’s political makeup by nominating a second Democrat. But it remains to be seen if Senate Republicans would approve new NCUA members.
Alternatively, the Biden team could punt on nominations seen as controversial and try to implement policy through interim regulatory appointments that would avoid the need for Senate confirmation.
Jeremy Kress, an assistant professor of business law at the University of Michigan, said Biden could use the Federal Vacancies Reform Act to fill regulatory posts if the Republicans in the Senate won’t confirm his nominees. The FVRA allows a president to nominate an acting head to an agency if the individual has already been confirmed by the Senate or if the person is a senior employee at the agency.
“The Biden administration is going to have to staff those positions,” Kress said. “If the Republican Senate refuses to confirm the Biden administration’s choices, the FVRA can be a powerful tool to install new leaders on an acting basis.”
A Senate stalemate over financial regulatory appointees would be nothing new. The nominations for several of former President Barack Obama’s appointments languished in the Senate over opposition from Republicans, who did not have the majority but were able to block confirmations under rules at the time — which have since been overturned — requiring 60 votes.
But previous administrations had an easier time of moving nominees through an opposing Senate.
Aaron Klein, a former Treasury official and Capitol Hill staffer, pointed to the early part of President George W. Bush's administration, when the Banking Committee chairman, former Sen. Paul Sarbanes, D-Md., facilitated the confirmation of nominees.
“Sarbanes moved most of Bush’s nominees fairly expeditiously," said Klein, policy director at the Brookings Institution's Center for Regulation and Markets. "But the Senate has changed a lot in 20 years. We will see if Republicans give President Biden the same authority to assemble his team that Democrats gave President Bush when they controlled the Senate early in the Bush presidency.”
Allissa Kline, Jon Prior, Kate Berry and Laura Alix contributed to this article.