White House in no hurry to confirm key bank regulators

WASHINGTON — The White House appears unlikely to nominate full-time leadership to some of the nation’s top federal banking regulators in the near future, raising precedential questions about governance and the future role of Senate confirmation in financial supervision.

In control of the executive government for nearly 16 months, the Biden administration has not secured Senate confirmation for any key leaders among the three prudential bank regulators — the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

The OCC, regulator of nationally chartered banks, has been without a Senate-confirmed leader for nearly two years and has been led by acting Comptroller Michael Hsu since May 2021. At the FDIC, which supervises state-chartered banks, acting Chairman Martin Gruenberg has served since February after the departure of the agency's Trump-appointed, Senate-confirmed chair. And the Federal Reserve, which supervises banks at the holding company level, has been without a vice chair of supervision since October, when the term of former Gov. Randal Quarles expired. (Even Jerome Powell, the Trump-appointed chair of the Federal Reserve, is currently leading the agency on an expired term as chair pro tempore.)

The lack of confirmations has not been for lack of effort, and the obstacles faced by the Biden administration have been manifold — not the least of which has been the political reality of an evenly split Senate between Republicans and Democrats, giving the White House a razor-thin margin of error to secure nominees’ passage.

That margin has nicked the White House several times over for its financial regulatory nominees. When Biden nominated Saule Omarova, a law professor at Cornell University, to lead the Office of the Comptroller of the Currency, several moderate Democrats ultimately declined to support her candidacy.

With Sarah Bloom Raskin’s nomination to be the Fed’s vice chair for supervision, stalwart Republican opposition and just one dissenting Democratic vote — courtesy of Sen. Joe Manchin, D-W.Va. — was enough for the twice-Senate confirmed former official to drop out of the running.

“The White House, with these nominations, has been acting like they’ve got 54, 55 seats in the Senate,” said Ian Katz, a managing director at Capital Alpha Partners. “They may have 50 senators, but they can’t count on Manchin.”

In the wake of those failed nominations, few analysts expect the White House to spend — and potentially waste — more time trying to hammer through nominees to lead the OCC and FDIC on a Senate-confirmed basis so long as the agencies continue to be led by reliable leaders who pursue the Biden administration’s agenda.

“The Biden administration has individuals who will advance Biden-aligned policies in those seats already,” said Isaac Boltansky, managing director and director of policy research at BTIG, “so my sense is that getting Senate-confirmed individuals in those roles will be pretty far down the list.”

What’s more, the two of the most obvious candidates for White House nomination at the OCC and FDIC — Hsu and Gruenberg — would also likely face sharp resistance from Republicans after their participation in a December power struggle at the FDIC that culminated with the resignation of former Chair Jelena McWilliams.

Both Gruenberg and Hsu, along with Consumer Financial Protection Bureau Director Rohit Chopra, used their seats on the FDIC board to try to approve a request for information on bank merger review without McWilliams’s approval. Republicans have called the maneuver an “illegitimate coup.”

With Hsu and Gruenberg apparently unlikely to attract bipartisan support, few progressives are clamoring for their replacement — an acknowledgment that their Senate-confirmed alternatives would likely not be as left-leaning as the current officeholders

“I don’t think [the White House] will nominate someone for FDIC or OCC,” a progressive advocate said after the White House nomination process. “They have perfectly fine people running those agencies who can serve indefinitely.”

But the Fed’s vice chair for supervision is a different matter — the role cannot be filled via acting official appointment, leading analysts to expect that the White House will eventually try to find someone to fill the influential role. (Without a vice chair, the division of supervision and regulation staff is reporting directly to the board as a whole, primarily focusing on day-to-day supervision and ongoing regulatory initiatives.)

“I still think we see another vice chair for supervision nominee given the importance of that role and the operational ambiguity with the vacancy, but I don’t see much utility in pushing for confirmations at the FDIC or the OCC,” Boltansky said.

Spokespersons for the FDIC and OCC declined to comment for this story. The White House did not provide a comment.

In the meantime, the OCC and FDIC under acting leadership are currently pursuing policy roughly in line with what the Biden administration would expect from its Senate nominees. But some in Washington worry about the long-term precedent that could be set by a routine circumvention of the Senate’s constitutional obligation to provide “advice and consent” to executive posts.

“When acting officers are kept on indefinitely for years on end, rather than just as a placeholder while someone else is being nominated, it's really going against the spirit and intent of the various vacancies laws,” said Thomas Berry, a research fellow at the Cato Institute.

There is an emerging consensus among some constitutional scholars that the Senate confirmation process has problems. The Biden administration has had high-profile struggles to secure congressional approval for nominees even beyond the financial regulators, and just last month the Senate Committee on Homeland Security and Government Affairs convened a panel to examine the process and whether federal vacancies laws need reform.

Among the potential problems, some analysts say, is an overabundance of roles in the executive branch of government that require confirmation in the first place. But unlike some of those roles, the federal bank regulators hold significant rulemaking power over the nation’s financial institutions.

“If they're making final decisions on regulatory standards, etc., they're essentially making executive policy from the executive branch,” said Berry. “That's where you really want the Senate to have weighed in and vetted them.”

As a matter of authority and ability, analysts say there is little practical distinction between a Senate-confirmed official and one leading an agency in an acting capacity. But a prolonged reliance on acting officials among major rulemaking agencies can fuel accusations of poor government accountability.

“A Senate-confirmed candidate adds to the legitimacy of the work product of an agency,” said Mills. “It also allows the leader to send a message to the workforce of that agency that he or she is overseeing that there’s some level of permanency to their tenure.”

And even as Republicans play a crucial role in rejecting the Biden administration’s would-be full-time nominees, some GOP senators are taking aim at the acting officials left running the government.

“The Senate’s bipartisan rejection of multiple Biden banking nominees should signal to the White House that they must nominate more mainstream individuals who will earn bipartisan support,” said Sen. Pat Toomey, R-Pa., and ranking member on the Senate Banking Committee, in a statement to American Banker. “Instead, the administration appears to be filling the open slots with unconfirmed acting heads who are even less accountable to Congress, and therefore, the American people.”

In his statement, Toomey specifically criticized the ongoing tenure of Gruenberg at the FDIC — whose term at the agency technically expired three years ago. Toomey criticized the longtime official for an Obama-era initiative that scrutinized banks’ partnerships with “risky” industries, including firearm firms and payday loan companies, dubbed Operation Choke Point, and Gruenberg's support for Democrats' December power play at the FDIC.

“I hope the administration will move swiftly to nominate qualified individuals who will earn bipartisan support,” Toomey said.

A spokesperson for Sen. Sherrod Brown, D-Ohio, and chair of the Senate Banking Committee, defended the White House’s efforts to stock the financial regulators with Senate-confirmed personnel.

“President Biden has nominated several highly qualified individuals who would prioritize workers and small banks and make our financial system work for everyone,” the spokesperson said. “But industry, including Wall Street and the oil and gas industry, and their allies in Congress will stop at nothing to protect their power and interests."

“Sen. Brown will continue to work with his colleagues and the Biden Administration to nominate and confirm strong financial regulators who will center workers in our economy,” the spokesperson said.

But finding an official who can please moderates and progressives alike has proven to be a tough lift for the Biden administration. “There does not seem to be the regulatory unicorn that gets the support of [Sen.] Elizabeth Warren and Joe Manchin at the same time,” said Mills.