Who Runs the FDIC? Democratic Challenge to Trump Chair Explained

A rare public fight between the FDIC’s Democratic board members and its Republican chairman over bank merger policy is likely the first salvo in a battle to bring the regulator’s agenda in line with the Biden administration.

The Federal Deposit Insurance Corp. was ripe for a conflict with Chairman Jelena McWilliams—a former bank executive appointed by President Donald Trump in 2018—being outnumbered by three Democrats on the agency’s five-member board.

But few expected it to happen just two months after President Joe Biden’s choice to lead the Consumer Financial Protection Bureau, Rohit Chopra, was confirmed to his post, which automatically comes with a seat on the FDIC’s board.

Chopra and FDIC board member Martin Gruenberg, also a Democrat, posted a statement and request for information (RFI) on overhauling bank-merger reviews late last week. That move prompted the FDIC to issue its own statement against the RFI, noting that “no such document has been approved” by the FDIC.

How the fight is ultimately resolved will have a major impact on how the FDIC conducts merger reviews and other key areas of bank supervision, from climate change risks to bank cryptocurrency holdings.

The spat also could have ripple effects on future nominations for financial regulatory posts in the Biden administration, resulting in more moderate choices that can clear the evenly divided Senate.

What Happened?

Chopra and Gruenberg attempted to launch an FDIC public comment period on potential reforms to the Bank Merger Act. The 17-page document, posted on the CFPB’s website, pointed to a stricter review of mergers that would effectively end big bank deals and make smaller ones tougher to get approved.

The focus on toughening up merger reviews wasn’t a surprise. Chopra, a former member of the Federal Trade Commission, has made increasing financial services competition to benefit consumers a key goal of his CFPB tenure. The president also highlighted bank merger policy in his July executive order on boosting competition.

Chopra and Gruenberg’s joint statement indicated that the third Democrat on the FDIC board, acting Comptroller of the Currency Michael Hsu, supported the information request. But Hsu didn’t sign on to the statement.

Who Has the Advantage?

Gruenberg, who served as FDIC chairman during the Obama administration, contends that the FDIC’s bylaws allow for items to be placed on the board’s agenda by a simple majority of members.

McWilliams and her FDIC staff contend that the agency’s bylaws state that only the chair can set the agenda.

The problem is finding a way to resolve that dispute. The Democratic members could conceivably sue McWillaims, but the courts could simply choose not to get involved.

McWilliams currently has the upper hand because she can block the information request from becoming official in the Federal Register.

“In this case, there was no valid vote by the Board, and no such request for information and comment has been approved by the agency for publication in the Federal Register,” the FDIC’s statement said.

What’s the Broader Impact?

McWilliams has used her post to stand against other Biden initiatives. She recently abstained from a vote on a Financial Stability Oversight Council report on the risks that climate change pose to the financial system.

She was expected to hold the Republican line against Democrats on other issues such as consumer protection initiatives.

At the same time, Democrats were expected to take a more skeptical look at cryptocurrency, stablecoin and other regulations than McWilliams would prefer.

The fight over merger reviews could spill over to areas that were expected to see bipartisan cooperation, including the FDIC’s rewrite of the Community Reinvestment Act regulations with the Office of the Comptroller of the Currency and the Federal Reserve.

If McWilliams manages to keep control of the agenda and block Democratic initiatives, it’s unlikely that the FDIC will move anything significant until after her term ends in 2023. While McWilliams can leave on her own accord, Biden has limited removal powers and can only fire her for cause.

An FDIC board scheduled meeting on Dec. 14 will be the first public indication of how deep the rift is between McWilliams and the board’s Democrats. The remaining seat on the five-member board is vacant.

Future Nominees?

Chopra and Gruenberg’s aggressive move may also have an impact on how the Senate responds to future Biden nominees to key financial regulatory posts.

Chopra’s nomination to lead the CFPB barely cleared the Senate on a 50-48 party-line vote in September. Sen. Pat Toomey (R-Pa.), the ranking Republican on the Senate Banking Committee, blasted the merger review proposal as a “Chopra Coup,” and several other Republicans have echoed that line.

Chopra’s move could spook centrist Democrats, who were pivotal in spiking Biden’s nomination of Cornell University law professor Saule Omarova to lead the OCC. They cited concerns about her progressive academic writings in favor of drastically overhauling the U.S. banking system.

Fallout from Chopra’s and Gruenberg’s move could force the White House to nominate more centrist Democrats for the OCC post, the Federal Reserve’s vacant vice chair for bank supervision, and ultimately the FDIC when McWilliams’ term ends.