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Blog Post | January 10, 2022

Questions And Answers About The FDIC

Executive BranchFinancial RegulationRevolving Door
Questions And Answers About The FDIC

After a tense standoff last December, Trump-appointed FDIC Chairwoman Jelena McWilliams unexpectedly resigned from the agency on New Year’s Eve. Director Martin Gruenberg will now serve as the Acting Chairman while awaiting a permanent nominee from President Biden (Gruenberg was previously Chairman under President Barack Obama). Democrats now hold a 3 – 0 majority on the FDIC Board between Gruenberg, CFPB Director Rohit Chopra, and Acting Comptroller of the Currency Michael Hsu.

McWilliams resigned after spending December publicly insisting that Chopra, Gruenberg, and Hsu were undermining her authority by conducting a legal, notational vote-by-mail on a proposed Request For Information (RFI) about possible updates to bank merger review rules. The Revolving Door Project, which followed the FDIC standoff closely, answers common questions below.

Read the Revolving Door Project’s previous writings on the FDIC standoff at the below links:

Q: Was Jelena McWilliams forced out?

A: No. McWilliams willingly resigned. She would have been perfectly welcome to stay on the board and dissent from every action the Democratic majority took — that was the position she and other Republicans put Martin Gruenberg in throughout the Trump era.

Q: Is it legal for the FDIC to operate with only one party on the Board?

A: Perfectly. Like any other independent federal agency, when resignations or firings leave the FDIC Board with only one political party represented, it is still able to conduct major business while waiting for the President to nominate, and the Senate to confirm, new leaders.

In 1977, before the FDIC Board expanded from three to five members, the agency was led by two Democrats (George LeMaistre and John Heimann) while the third seat sat vacant. It was filled the next year by Republican William Isaac. The 1977 FDIC still conducted critical business while waiting for its vacant seat to be filled. The 2022 FDIC should do the same.

Q: Did Rohit Chopra, Martin Gruenberg, and Michael Hsu break the law by voting in favor of the draft Request For Information without McWilliams’ approval?

A: No. Nothing in the FDIC’s statute or bylaws says that the Chair has to initiate voting proposals. In fact, the bylaws explicitly state that the Board can conduct business by “notational vote” even outside of a Board meeting, which is how this vote was conducted. It’s even on the FDIC’s website.

FDIC General Counsel Nick Podsiadly has claimed that the RFI vote was illegitimate because the Chair did not initiate it. McWilliams has echoed Podsiadly’s claim. Neither have ever made their legal reasoning public. Notably, Podsiadly is McWilliams’ former lobbyist: while she was the chief legal officer at Fifth Third Bancorp, he was its senior vice president for regulatory and public policy, a common euphemism for a lobbyist. 

Q: Did Chopra, Gruenberg, and Hsu break any rules by writing the RFI themselves, instead of having the FDIC staff do it? 

A: No. Again, nothing in the FDIC statute or bylaws forbids a director from writing their own proposal. Chopra also attempted twice to solicit input and legal reviews from FDIC staff, only to be blocked by Podsiadly. It is certainly not illegal for a director to save the FDIC staff some writing and research labor, especially after trying twice to let the staff edit their work. 

McWilliams has claimed that Chopra wrote the whole RFI himself, and said that it was “unprecedented” for Chopra to draft and circulate his own proposal, instead of having FDIC staff write it for him. But unprecedented things happen all the time. A lack of precedent alone does not make something illegal or improper.

Q: Were Chopra, Gruenberg, and Hsu acting unreasonably?

A: No. Chopra sent the draft RFI to McWilliams on Halloween; asked to circulate it to staff for a legal review on November 16, and then again on November 18; initiated a vote on November 26; and closed the vote on December 10. This timeline is according to McWilliams’ own Wall Street Journal op-ed. McWilliams had almost a whole month to work with the Democrats before the vote, and then two weeks to vote on the proposal. She did not provide her alternative RFI proposal until December 10th, hours before the voting closed, again according to her own timeline.

Contrast this with the voting timeline for one of McWilliams’ own proposals. At midnight on December 15, 2020 — after it was clear that Joe Biden had won the Presidential election and McWilliams would soon be in the minority on the FDIC Board — McWilliams circulated a proposed rule deregulating “hot money” deposits. The next day, she had the Board vote on it, without an extended voting period like Chopra, Gruenberg, and Hsu offered. Also unlike them, McWilliams was not simply proposing to begin gathering information ahead of a possible change to rules. She was asking the Board to approve her final changes to a complex rule which could threaten the FDIC’s own financial stability. She offered Board members 24 hours to review a sweeping deregulatory change, unlike the month and a half Democrats offered her to review a simple request to gather information.

Q: Does the FDIC Board have to do whatever the Chair wants?

A: No. We are unaware of any previous Chair of a commission arguing that a vote by a majority of their Board is illegitimate if the Chair did not personally initiate it. This would effectively defeat the entire purpose of a Board, because no Chair would allow votes on any actions in which they are in the minority. 

Keep in mind that the Supreme Court’s Republican majority decided in Seila Law LLC v. Consumer Financial Protection Bureau and Collins v. Yellen that it is unconstitutional for an independent agency to be run by a singular Chair or Director whom the President cannot hire and fire at will. (In other words, a single unelected agency head cannot govern unchecked by a multi-member Board or an elected President.) The FDIC Chair is independent of the President, and their term is designed to extend across Presidential terms — that’s why McWilliams retained her Chairship even after Joe Biden became President. Thus, under the law determined by the Republican Supreme Court, McWilliams could not constitutionally run the FDIC by fiat.

Q: Are Democrats politicizing the FDIC Board?

A: No. McWilliams was welcome to vote against the RFI proposal, and was welcome to remain as the FDIC Chair until her term expired. A 3 – 1 majority setting policies they favor at the FDIC is not unjust “politicization.” It is the basic practice of democracy, in keeping with the FDIC’s design. 

Notably, when Republicans held the majority on the Board, they went far beyond just setting policies disfavored by Democrats. In four years, the Trump administration never nominated a single Democrat to fill open Democratic seats on the Board, disregarding requests from Democratic Senators in the process. Martin Gruenberg, whose term began under Barack Obama, was the lone Democrat on the Board for all of McWilliams’ tenure. None of his complaints or policy initiatives were ever acted upon. 

Q: Did McWilliams break the law?

A: Quite possibly. When Podsiadly claimed the vote on the RFI was illegitimate, he did so without providing any public legal justification. He still has not, even after a formal request from Representative Maxine Waters, the Chairwoman of the House Financial Services Committee. Meanwhile, the day after Podsiadly declared the vote illegitimate, Chopra sent him a 10-page letter showing how the FDIC’s bylaws clearly permit Board members to conduct business independent of the Chair.

If Podsiadly’s reasoning were strong enough to hold up in court, he would have no reason to keep it hidden for months. Since McWilliams, herself a lawyer, relied on Podsiadly’s reasoning to likewise declare the vote illegitimate, she is also implicated in this likely baseless attempt at overturning the Board’s will.

Georgetown University law professor Adam Levitin has explained that historically, the FDIC Chair “would allow free discussion and a vote on any item a director wished to have on the agenda.” He described the RFI request as “the sort of pro forma action that has always been approved by FDIC chairs in the past, even when they have not supported the item.”

In Levitin’s words, “McWilliams has recast the agency as a personal dictatorship, willfully ignoring the consequences of the 2020 election that gave Democrats a majority on the FDIC board.”

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