Update 186 — Fin Reg Agency Review:
Wrecking Crew for Administrative State?
This morning, Chris Giancarlo appeared before the Senate Agriculture Committee for his confirmation hearing to lead the Commodities Futures Trading Commission. At this juncture, the ideological profile of the administration’s nominees and appointees to serve on the financial regulatory agencies is gaining an unmistakeable hue.
We wanted to take this opportunity to review the state-of-play on the leadership transitions of five such agencies — key components of what Steve Bannon refers to as the administrative state. To paraphrase Tolstoy, every unhappy agency is unhappy in its own way. Details below.
SEC: The Recusal Chairman
Jay Clayton’s ascension to Chair of the SEC has been dogged by questions about commitments to former clients. His support for reversing regulations has been noted with concern. He led Goldman Sachs’ plea for a government bailout during the financial crisis. His close ties to Goldman Sachs and Deutsche Bank mean he must recuse himself for two years from enforcement votes dealing with these entities. He is also closely connected with Volkswagen and Valeant Pharmaceuticals.
Clayton may have the most free time of any SEC chief in history. In his Senate confirmation earing, Clayton assured the Committee that he would be an honest enforcer in eliminating fraudulent practices. Unable to see past his experience working for firms currently under investigation, 37 Democratic members opposed his nomination.
CFTC: Giancarlo’s Vision
Democratic Commodities Futures Trading Commission Member Sharon Bowen announced her forthcoming departure on Tuesday. She expressed frustration that only two of the agencies’ five commissioner seats have been filled and said the vacancies render important policy decisions impossible. Bowen summarized the predicament of the agency as “intolerable.”
President Trump nominated Acting CFTC Chair Chris Giancarlo to become official Chair in March. At the time, Giancarlo unveiled plans to change CFTC’s mission to that of fostering economic growth and to “right-sizing” its regulatory approach. He also introduced plans to change the way CFTC conducts market surveillance, creating a new “chief market intelligence office.” In the same speech, he criticized DFA swaps trading rules and pledged to review the fintech sector. Giancarlo is expected to be an active member of FSOC, believing the body to fail to consider what he believes to be the constraining effect of regulation.
In today’s confirmation hearing, Giancarlo changed his tune to supporting Title VII of the DFA based on his practical experience of 14 years. Title VII of the DFA outlines central clearing of swaps, swaps data reporting, and regulating swaps trading. He repeatedly stated his support and his desire to keep the title completely intact.
When asked about regulatory reform by multiple Democrat senators, he explained his want to modernize regulations that are out of date and increase the efficiency of putting them into place. The project he created in adherence to Trump’s EO on regulation, called Project KISS, aims to look at the practical application of rules and see if they can be applied in a less costly manner and achieve the same goals.
Don’t be fooled. Despite his seemingly reasonable remarks, Giancarlo is one of the most far right of the administration’s nominees. He is a champion for the view that Dodd-Frank regulations are a drag on economic growth.
FDIC: A Familiar Choice
President Trump will appoint James Clinger to replace Martin Gruenberg as FDIC Chairman when Gruenberg’s term expires in November. Clinger has worked for years on Capitol Hill, contributing substantially to the Gramm-Leach-Bliley Act to repeal Glass-Steagal. Notably, Clinger worked on the Committee staff of Financial Services Chair Jeb Hensarling of CHOICE Act fame.
FDIC is responsible for regulating thousands of community banks. With respect to Dodd-Frank, the FDIC is key in overseeing large bank living wills and in administering OLA should Title II of DFA be invoked to wind down a systemically important firm. The CHOICE Act would eliminate OLA.
OCC: Turning Tables, Revolving Doors
The administration has already maneuvered to put its Acting Comptroller of the Currency in place. Former bank attorney Keith Noreika was appointed as the top deputy in the OCC before the administration fired Obama’s appointed Comptroller, paving Noreika’s way to serve as Acting Comptroller. Trump got his temporary man by sidestepping the Senate consent process. Senator Van Hollen was sure to bring this up in today’s SBC hearing and indeed asked if Noreika would sign the Trump administration’s ethics pledge on preserving the public trust. Noreika flatly said he would not.
Steve Mnuchin’s old stomping ground at OneWest is looking like the newest launching pad for public sector service. Joseph Otting is the most recent alumnus to be nominated for a major regulatory post when the White House tapped Otting to lead the Office of the Comptroller of the Currency. He may become the administration’s de-regulatory czar, as his agency is tasked with “reducing the regulatory burden,” among other responsibilities.
When the financial crisis hit, Otting’s OneWest foreclosed on thousands of homeowners via questionable practices. From 2011 to 2015, Otting became closely acquainted with OCC, as his firm took a lengthy four years to meet the compliance concerns of the agency.
Now that the tables have turned, can Otting serve as an honest enforcer? As Senator Brown puts it, “the president’s choice for watchdog of America’s largest banks is someone who signed a consent order — over shady foreclosure practices — with the very agency he’s been selected to run.”
CFPB: Reform at Your Peril
There is no clearer battle line in Washington on financial regulation than the one between the GOP and the Consumer Financial Protection Bureau. Republicans regularly trash its “swanky” office, its poorly-defined definitions of abusive practices, and the Federal Reserve funding that keeps it running.
But President Trump has not indicated that he will ask for the resignation of Richard Cordray, the still-serving inaugural Director of the agency created by Dodd-Frank. This is surprising restraint for a person so admired for firing people. Could be negligence.
Last week’s Treasury Department report issued severe criticism of the CFPB’s MO, pointing to the shirking of “notice-and-comment rulemaking,” the lack of “clear regulatory standards,” and the lack of clarity in defining unfair, deceptive, and abusive practises. The report made several recommendations with these criticisms in mind.
Cordray’s term does not expire until July 2018, but the administration joined a legal challenge to remove Corday in March. Sharp CFPB critic Randy Neugebauer is viewed as a possible replacement.