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Newsletter | Revolving Door Project Newsletter | December 15, 2021

Biden’s Bank Regulators Play Hardball

Confirmation CrisisDepartment of JusticeFinancial RegulationIndependent AgenciesSEC

Will the President follow their lead?

This edition of the Revolving Door Project newsletter was originally published on our Substack. View and subscribe here.

Late last Thursday, a Democratic majority on the Federal Deposit Insurance Corporation (FDIC) board announced that it had voted to take comment on the agency’s process for reviewing bank mergers, a policy that fits neatly within the Biden administration’s whole-of-government approach to competition. On its face, this is wholly unremarkable. But what should have been just another early step towards meeting this administration’s goals quickly turned into an all out war thanks to the FDIC’s Trump holdover chair Jelena McWilliams. 

Shortly after the announcement was released on Consumer Financial Protection Bureau’s website, the FDIC issued a statement saying that the request for comment had not been approved because McWilliams had not brought it for a vote. In essence, McWilliams is attempting to argue that the FDIC cannot take any action without her approval. But while she has the backing of Republican lawmakers (who quickly and without a hint of irony labeled the vote a “coup”) and her hand-picked General Counsel, her position finds no support in the board’s actual bylaws. In fact, the rules and regulations governing the board’s internal affairs give the board’s majority the unambiguous right to bring votes and take action.  

Importantly, this is different from saying that the Democratic majority’s actions were inevitable. Across the administration, there are countless examples of Biden administration officials shying away from lawful action to avoid Republican outcry. Indeed, one of the members of the FDIC’s majority, Acting Comptroller of the Currency Michael Hsu, appears only to be tentatively on board with the whole maneuver. That makes CFPB Director Rohit Chopra and FDIC Director Martin Gruenberg’s fierce advocacy all the more praiseworthy (and underscores the need to maintain pressure on Hsu to follow through). 

President Biden himself could stand to learn something from the FDIC members’ willingness to pursue every legal pathway available, even when it engenders disingenuous Republican backlash. As we speak, FDIC Chair McWilliams continues to act in an apparently illegal manner to defy the will of the board’s majority, including by directing FDIC staff not to comply with its directives. 

Amazingly, the FDIC has offered no legal analysis to support McWilliams’ facially illegal move, and the media has not altered its coverage accordingly. It is both clear and uncontradicted that by both statute and bylaws, the FDIC Board is in the right and the Chair and her bank lawyer General Counsel are insubordinate. That defiance gives President Biden ample grounds to fire her, even under the elevated standards that protect the FDIC Chair from removal except “for cause.” He should not hesitate to do so.   

Personnel:

There’s no denying that, when it comes to new nominations, the last few weeks have not brought good news for many progressives. First, there was the Biden administration’s decision to renominate Jerome Powell (and its continued failure to name a Vice Chair for Supervision or to fill a vacancy on the Board of Governors that has existed since Inauguration). Then, soon afterwards, Saule Omarova withdrew from consideration to be the Comptroller of the Currency following dishonest, racist attacks from the banking industry and Senate Republicans Senators. 

Amid all of the gloom, a recent Wall Street Journal profile on the SEC’s Director of Enforcement, Gurbir Grewal, served as a welcome reminder of what we have been able to accomplish. The Journal is clear, Grewal does not fit the usual mold for an SEC enforcement director. While most of his predecessors (including his immediate predecessor, Alex Oh, who was forced to resign after only a week following outcry from ourselves and others) spent most of their careers defending clients against SEC action, Grewal has consistently, zealously worked on the public’s behalf in various prosecutorial roles, most recently as New Jersey’s Attorney General. Already it’s clear that that background leaves him much less worried about the supposed risk of overreach and much more inclined to move aggressively to crack down on corporate wrongdoing. Concretely, Grewal has indicated that the enforcement division will work to impose tougher sanctions and get companies to admit wrongdoing. That latter move, in particular, could help bolster related challenges against the companies. 

There are encouraging signs of a mounting crackdown on corporate misbehavior elsewhere in the administration as well. Earlier this fall, the Justice Department announced a new, more aggressive approach to white collar enforcement. This past week it suggested that those were not empty words when it secured a guilty plea from chemical giant Monsanto for repeated violations of federal environmental law in Hawaii. Still, we’ll need to see much more, across the breadth of the Department, to believe that a real shift is underway. 

A new piece from Bloomberg Law suggests that filling open U.S. Attorney positions will also be critical to the scope and success of this new push for corporate accountability. Many experts agreed that acting U.S. Attorneys are far less likely to initiate the sort of big, cultural changes that may be necessary to reorient office resources towards white collar enforcement. Yet, acting officials still fill the majority of U.S. Attorney roles. Biden-appointed U.S. Attorneys fill just 31 district offices. Nominations are pending for another 7, while 55 offices continue to be under the direction of acting U.S. Attorneys without a Biden nominee. To ensure the success of the Justice Department’s efforts to ramp up white collar enforcement, Biden should move more quickly to fill these positions, and Senate Democrats should stand together to ensure that the Senate fulfills its constitutional obligation to grant nominees an expeditious vote. 

Governance:

While we have been pleasantly surprised by the Justice Department’s recent moves on corporate accountability, its (in)action when it comes to accountability for the prior administration continues to underperform our exceedingly low expectations. For the American Prospect this week, I highlighted an overlooked but highly consequential aspect of this broad failure: Garland’s refusal to investigate hiring practices that occurred under Jeff Sessions and Bill Barr. We at Revolving Door Project have identified two cases where political figures were hired into senior career roles. The first, Alexander Haas went from being Chief of Staff and Senior Counselor to the Assistant Attorney General for the Civil Division to being a career Director of the powerful Federal Programs Branch. The second, Curtis Gannon was a member of Trump’s DOJ landing team and the acting head of the Office of Legal Counsel. Today, he is the career Deputy Solicitor General. “From their perches, both have played a part maintaining Trump’s legacy in the courts.”

Many were rightly shocked to learn that these officials have seemingly undergone no scrutiny and that they remain in a position to shape the Biden administration’s policy. In truth, however, it is entirely unsurprising. Attorney General Merrick Garland has also done nothing to investigate the cases of burrowing (when a political official is hired into a career job) that were publicly reported on at the end of last year. Nor has he moved to remove political holdovers from the Trump administration like Bureau of Prisons Director Michael Carvajal, despite his disastrous leadership (which my colleague Hannah Story Brown described in detail for Talking Points Memo last week).  

This refusal to act comes at a heavy cost. Sadly, it seems that Garland cares more about his reputation with Senate Republicans than that toll. And alas, we suspect that despite Garland’s ardent courting, Senate Republicans will never give him the up or down vote for the Supreme Court seat they unconscionably denied him in 2016. 

Independent Agencies:

With the confirmation of Jessica Rosenworcel to another term on the Federal Communications Commission (FCC) last week, Senate Democrats narrowly avoided handing Republicans an FCC majority in the new year. But the celebration was muted; the Commission still lacks a Democratic majority as the President’s second nominee, the more “controversial” (i.e., committed public interest advocate) Gigi Sohn, awaits confirmation. What’s more, another 22 Democratic nominations are pending for seats on other independent agency boards. 

Rosenworcel’s confirmation process was relatively swift at just over a month from nomination to a final floor vote. This demonstrates that the Senate can move quickly to confirm officials when it makes them a priority. Unfortunately, with hundreds of seats to fill across the federal government and scarce Senate floor time in which to confirm occupants, not everyone can be a priority. This forces a deeply damaging tradeoff. Consider, for example, that Rosenworcel was confirmed in about 40 days while nominees for the Merit Systems Protection Board (MSPB) have been awaiting confirmation for six months (after having lacked a quorum for years). 

The competition for scarce Senate floor time forces lawmakers to decide: is it more important that the FCC avoid a Republican majority or that the MSPB be made operational or that Ambassadors be dispatched across the globe and on and on? Such questions hardly seem the mark of a well-functioning governing system. Call us radical, but we think that the American people should be able to expect a working telecommunications, civil service, and foreign policy all at the same time. Getting there will undoubtedly take action on multiple fronts, but changes to the Senate confirmation process is surely one of them. 

Want more? Check out some of the pieces that we have published or contributed research or thoughts to in the last week:

The Trump Officials Still Running Biden’s Justice Department 

The Bureau Of Prisons Needs New Leadership, Now 

Biden Gets Why Meat Prices Are So High. Why Isn’t He Going On Offense About It?

Beyond HUD And FHFA: The Federal Government’s Other Housing Agencies

The “Coup” At The FDIC Is Jelena McWilliams Overturning Majority And Congressional Will 

Big Business Taps Trump’s Lead Union-Buster To Attack Workers’ Rights 

Big Business Lobby Taps Trump’s ‘Chief Union-Buster to Kneecap’ Worker Rights

In Bid to Beef Up Bank Rules, Dems Stop Playing Nice

Trump officials hired ‘under suspicious circumstances’ still hold key positions in Merrick Garland’s DOJ: report

Dust-up at FDIC portends bigger fight over bank regulation

Confirmation CrisisDepartment of JusticeFinancial RegulationIndependent AgenciesSEC

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