By Rick Metsger
The election of Joe Biden as the next President of the United States translates into a major reboot of the nation’s financial regulatory landscape as the new administration hits CTRL, ALT, DELETE throughout the executive branch and returns mainframe operations back to their pre-2017 settings.
Change begins at the top as Biden will move quickly to take control of the Financial Stability Oversight Council (FSOC) and the Federal Financial Institutions Examinations Council (FFIEC). These bodies oversee inter-agency regulatory rules and guidance and are comprised of the leadership of the various independent financial regulators.
A new Treasury secretary will be the priority and sources tell me there is a very short list under consideration. Lael Brainard, my former colleague on the NeighborWorks America board of directors and current Federal Reserve Governor, is a leading candidate.
Squelching One Rumor
Rumors have circulated that current Sen. Elizabeth Warren (D-MA) might be tapped for that position, but that is a non-starter. Under Massachusetts law the governor would appoint her replacement, and since the governor is a Republican there is zero chance Biden will sacrifice a precious senate seat.
Kathy Kraninger will be replaced as director of the Consumer Financial Services Bureau, ironically, because of actions taken by Republicans and the Trump Administration. Committed to remove former director Richard Cordray from the position, they sued in federal court arguing the agency, led by a single director not subject to removal without cause by the president, was unconstitutional. They won in the Supreme Court, but Cordray had already resigned to run for Ohio governor, opening the door to appoint Kraninger. Biden will now flip the tables and use the decision to make his own change.
Speculation that Cordray will be returned to that post is another non-starter. Achieving confirmation by a Senate that may still be under Republican control would preclude Biden from picking that fight. Confirming anyone to that post will require a heavy dose of diplomacy and strategy. It may take some time. In the meantime, Biden will avail himself of another Trump move by installing his own acting director under the Federal Vacancies Act. Trump used the maneuver upon Cordray’s departure to install Mick Mulvaney into that position.
Other Changes
Brian Brooks, acting Comptroller of the Currency, will be replaced with a new acting director and Federal Reserve Board Governor Randal Quarles will have his title as Vice-Chairman for Supervision stripped when his term in that role expires later in the year.
SEC Chairman Jay Clayton will also be under the gun, especially for his perceived role in trying to help President Trump undermine investigations of the president by The Federal District of New York by ousting the head of the New York District and placing himself in the position. The plot failed, but the sand in the hourglass is starting to move. His term expires four months after the inauguration.
FHFA Director Mark Calabria has a fixed term, but the new administration will be assessing its options, especially as it relates to Calabria’s plan to remove Freddie Mac and Fannie Mae from government conservatorship and return them to the private equity markets. Most Democrats and some Republicans oppose the plan, fearing it will return pre-2008 risk to the financial system.
Democrats also believe it would enrich Wall Street investors while placing U.S. taxpayers on the hook once again. Credit unions and other financial institutions involved in the mortgage markets have their own concerns.
The NCUA Board Nomination
On the nominations front, there are currently more than 100 nominees awaiting confirmation on the floor of the U.S. Senate, including that of Kyle Hauptman to be a member of the NCUA board.
Every nominee confirmed by the Senate is one less nominee available to the new president. Those nominations expire in the first week of January and Senate floor time to advance the nominations is now a precious commodity. Among the pending nominations are 20 nominees for district and circuit court judges, a top priority of Senate Majority Leader Mitch McConnell (R-KY).
With the Trump Administration now counting down to the two-minute warning, Democrats in the Senate will not give unanimous consent to move any nominees and will attempt to run out the clock on as many nominees as possible. McConnell will focus on the judicial nominations while remaining nominations will compete for the dwindling time on the calendar.
Adding to the mix is a priority of moving a new stimulus package to deal with the economic fallout from the raging pandemic.
Prior to Biden’s election, I would have pegged Hauptman’s chances of confirmation at 90%. The change in the political landscape, coupled with the realization that Mr. Hauptman is the first NCUA nominee in decades to receive multiple dissenting votes in the Senate Banking Committee, puts his nomination in peril. In my opinion, it is currently 50-50 at best.
While a NCUA nomination is not the highest priority of either party, Democrats have not forgotten 2016. It was then, six months before the end of the Obama Administration, that the President nominated an outstanding credit union leader, John Herrera, to serve on the NCUA Board. As was the case with the much higher profile case of Supreme Court nominee Merrick Garland, Senate Republicans did not give Mr. Herrera even a committee hearing, much less a vote, and his nomination expired with the change in the White House.
A New Chairman
At stake for the NCUA and credit unions is whether the NCUA board will return to a collaborative and collegial process to advance and strengthen the credit union system or be saddled with partisan bickering.
On that note, one other prominent change will occur within hours of the inauguration of the new president. Current NCUA Chairman Rodney Hood will be relieved of the chairmanship and Todd M. Harper will become the 12th chairman of the NCUA.
There has been frustration among board members with Hood’s leadership style and that has erupted into public view with board items removed from agendas due to lack of votes and grievances aired in the press. Board Member J. Mark McWatters wrote in this publication (July 21, 2020) that the current Chairman was not working with the other board members in a “transparent and respectful manner.”
Hood has exercised tight control on the flow of information regarding development of agency policies and initiatives, ignoring the fact that each board member is charged by statute with responsibility for guiding the agency and that it is the board, not the Chairman that runs the agency. There are indications that career personnel at the agency have been instructed to not share certain information with other board members without receiving specific authorization from the chairman’s office. It has, as McWatters revealed in his op-ed, started to “sow seeds of dissent and distrust.”
The New Question
The question is how will Harper respond once the tables are turned and he takes over the corner office? Will he extend to Hood an olive branch or Karma? That, coming up in part two.
Rick Metsger is a former board member and chairman of the National Credit Union Administration.