❮ Return to Our Work

Op-Ed | The Hill | December 21, 2021

Is The Media Laundering Open Lawlessness At The FDIC?

Ethics in GovernmentFinancial RegulationIndependent AgenciesRevolving Door
Is The Media Laundering Open Lawlessness At The FDIC?

Read this article on The Hill website.

When two powerful figures accuse each other of lawlessness, one should expect the media to ask the obvious question: “who’s right?” Sometimes, that question gets into truly vague legal territory. But other times, it’s as simple as looking up the law in question and reading the answer in plain black and white.

That fact-finding is a crucial journalistic skill, but it’s currently proving too difficult for much of the financial and political media. Instead, a hugely consequential standoff at the Federal Deposit Insurance Corporation is being treated as another partisan soap opera, with an aggrieved Republican on one side — FDIC Chairman Jelena McWilliams — and an ambitious interloper on the other — Director Rohit Chopra, who also runs the Consumer Financial Protection Bureau. “Bank Regulators Are Trying To Oust A Trump Holdover” blared the New York Times, as Politico licked its chops declaring “It’s the most drama the world of financial regulation has seen in years.”

McWilliams and Chopra both make compelling characters, but only one is quite clearly violating the law, and attempting to seize absolute power over a crucial agency with no repercussions. Lost in the high emotion of their scrap has been any professional obligation by journalists to scrutinize their sources. All it takes is some ninth-grade comparative reading between Chopra’s and McWilliams’ accounts of the fight — the latter notably published in The Wall Street Journal — to see which one is full of it.

Let’s review the facts. The FDIC insures bank deposits and regulates smaller banks. There are four current members on the FDIC’s governing board, with one seat vacant. Three Directors are Democrats, and McWilliams is a Republican. McWilliams happens to be the chair, but no part of the FDIC’s statute or bylaws lets the chair override the other directors. That’s the whole point of a board.

But that isn’t how McWilliams has seen things since she entered the voting minority this year. According to Chopra, at his FDIC orientation in October, the agency’s general counsel, Nicholas Podsiadly, told him that “board members may not raise matters for discussion in board meetings, and only the Chairperson has this right.” Moreover, according to Podsiadly, “board members cannot guarantee that any topics will actually be discussed.” The agency’s top lawyer effectively told Chopra that the chair’s word is law at the FDIC Board meetings.

Nothing in the statute establishing the FDIC indicates this. This is just Podsiadly’s legal opinion, which he has not made public after a week of public fighting over this exact question. In fact, when Chopra later published a letter to Podsiadly rebutting his argument, the sections of the letter quoting Podsiadly’s opinion were redacted from public view.

Notably, before Podsiadly was hired as FDIC General Counsel in 2019, he was a lobbyist for Fifth Third Bancorp. That’s the same bank where McWilliams was Chief Legal Officer, before President Trump tapped her for the FDIC. She brought Podsiadly into the agency a few months later. Podsiadly, in other words, is McWilliams’ longtime footsoldier. Here he is serving her interests again, this time from inside the federal government instead of out.

Podsiadly’s name doesn’t even appear in McWilliams’ version of events. She merely writes that Chopra came to her with a proposal, instead of asking FDIC staff to draft it, which she considered improper. This dodges the key question of whether Chopra was allowed to bring the matter to a vote at all.

Regardless, since Podsiadly ruled that the chair controls everything at a Board meeting, Chopra and his fellow Director Martin Gruenberg instead sent letters to their colleagues, asking them to vote by mail on the proposal. 

This is perfectly legal. The agency’s bylaws clearly state that Directors “may transact business by the circulation of written items to all members of the Board of Directors” and the FDIC’s website even says “The FDIC Board of Directors also decides matters by notational vote.”

Chair McWilliams opposed the proposal, which is her right, just as it was Chopra and Gruenberg’s right to push on anyway. When the votes came back, McWilliams abstained and the one other Director — Acting Comptroller of the Currency Michael Hsu — supported the proposal. With a 3 – 0 majority, Chopra and Gruenberg assumed the agency would publish their request for information.

Instead, “the General Counsel asserted, without any legal justification, that the vote of the supermajority of the Board was invalid,” again according to Chopra. “We have provided extensive legal support for why this vote was valid but have received no reply at all from the General Counsel to defend his extreme view. We have essentially been instructed to accept an edict, but doing so would breach our fiduciary duties.”

Again, none of this appears in McWilliams’ version of the story. She instead writes that circulating the vote by mail “was a brazen attempt to seize control,” as if the bylaws don’t explicitly state that “The Board of Directors may transact business” through writing. [emphasis added] She also feigns offense that Chopra started a markup while she was on a flight to Switzerland. The actual vote didn’t start until ten days later, and it ran for two weeks. Yet Chopra and Gruenberg didn’t receive McWilliams’ counter-proposal until “hours before the voting closed.”

McWilliams’ best evidence that she’s the victim of a “coup,” as some Republicans are saying, is a non-public legal opinion written by one lawyer who used to be her lobbyist. Chopra’s evidence that she is asserting unlawful power is the text of the FDIC code and bylaws, the actual timeline of events, and a legal analysis he is comfortable sharing with the public. At best, McWilliams has shown that Chopra’s actions are unprecedented — but unprecedented things happen all the time, and they’re perfectly lawful. (The upshot of “unprecedented” also is unclear; is McWilliams disregard of the Board majority “precedented?”) But overruling a vote by mail, when that right is explicitly granted in the agency bylaws? That smells illegal.

And yet, almost none of this has made it into coverage of the standoff. The New York Times’ report doesn’t mention McWilliams’ lack of legal standing until the 20th paragraph. The Wall Street Journal’s latest news coveragedoesn’t mention the legal issues at all. Some coverage reasonably notes Chopra’s anti-monopolist views, without mentioning how McWilliams is a former M&A lawyer. She even joked with the CEOs of SunTrust and BB&T that “you made it very difficult to decline you” the day after she approved their merger in the largest bank tie-up since the Great Recession.

Conflict is the root of all storytelling, so it shouldn’t be surprising that journalists emphasize it whenever possible. But not all conflicts are between equal and opposing perspectives. When it comes to the law, sometimes someone is just right and someone else is just wrong.

Forcing those facts into a narrative of partisan battle might drive clicks and feel safer for outlets trying to maintain relationships on both sides of the aisle. But it does the public a disservice, and can even aid anti-democratic figures grasping at ever more power. This should have been a major lesson of the Trump years. Let’s hope the media wakes up to it as the standoff continues at the FDIC.

PHOTO CREDIT: “Functions and Firms” by University of Michigan’s Ford School is licensed under CC BY-ND 2.0

Ethics in GovernmentFinancial RegulationIndependent AgenciesRevolving Door

More articles by Max Moran

❮ Return to Our Work