Department of Justice Settles Discrepancy Over FDIC Board Power Struggle

FDIC boardLegislators sought clarity on the authority of the FDIC board compared to the FDIC chair when proposing actions for approval.

09/01/2022 2:00 P.M.

6 minute read

The Department of Justice (DOJ) Office of Legal Counsel has issued an opinion on the roles of the Federal Deposit Insurance Corp. (FDIC) board and chairperson after a power struggle arose earlier this year.

It started when FDIC board members Martin Gruenberg and Rohit Chopra, who is also director of the Consumer Financial Protection Bureau, posted a joint statement on the CFPB’s website Dec. 9 seeking public comment on the Bank Merger Act.

After the public comment request, the financial regulators were at odds with each other over the board members’ authority to propose actions—in this case the review of the bank merger policies—without approval of the chair, ACA International previously reported.

The FDIC, led by Chair Jelena McWilliams—a Republican member appointed by former President Donald Trump—responded that the bank merger review had not been approved.

From there, the ranking member of the House Financial Services Committee, U.S. Rep. Patrick McHenry, R-N.C., and the ranking member of the Subcommittee on Consumer Protection and Financial Institutions, U.S. Rep. Blaine Luetkemeyer, R-Mo., sent a letter to Chopra regarding conflicting testimony before Congress when asked about his role in the FDIC “power grab,” according to a news release.

McHenry and Luetkemeyer asked for responses from Chopra clarifying his testimony and on Aug. 30, announced the DOJ Office of Legal Counsel had issued its opinion on the balance of power between the board and the FDIC chair.

Ultimately, the DOJ found that “the chairperson of the Federal Deposit Insurance Corporation does not have the authority to prevent a majority of the FDIC Board from presenting items to the Board for a vote and decision,” its opinion states.

How Did We Get Here?

The power struggle over bank mergers and the role of the FDIC board and chair in related decisions escalated to the point where Chairwoman Jelena McWilliams announced her resignation effective Feb. 4, 2023.

After Gruenberg and Chopra proposed the public comment request on the Bank Merger Act, McWilliams responded that the request had not in fact been approved, ACA previously reported

“The Consumer Financial Protection Bureau (CFPB) posted on its website a document, purportedly approved by the FDIC, requesting comment on bank mergers. No such document has been approved by the FDIC,” the FDIC stated in its response in December last year. “The FDIC has longstanding internal policies and procedures for circulating and conducting votes of its Board of Directors, and for issuing documents for publication in the Federal Register. In this case, there was no valid vote by the Board, and no such request for information and comment has been approved by the agency for publication in the Federal Register.”

Gruenberg, Bloomberg reports, issued his own statement: “It is clear under the statute that the majority of the FDIC board of directors has authority to place items on the agenda for board meetings and, alternatively, to circulate and act on notational votes.”

He added that the “Federal Deposit Insurance Act empowers the board—and not the [chair].”

DOJ Decision

The Federal Deposit Insurance Act of 1950, as amended, “vests the substantive and procedural powers of the FDIC in the [b]oard, not the [c]hairperson, and the best reading of the FDIC’s [b]ylaws prescribed pursuant to the [a]ct is that they preserve the power of a [b]oard majority to present items for Board decision and vote,” the DOJ’s opinion states.

It also lists the following reasons that preserve the balance of power between the board and FDIC chair:

  • There is no general or specific source of authority in the FDIC Act that can be read as permitting the chairperson to prevent a majority of the board from exercising its statutory responsibilities or otherwise making decisions for the FDIC.
  • The power to present matters for board vote and decision is not explicitly addressed by the act. The act, however, is perfectly clear that the board, not the chairperson, has the authority to determine how the FDIC should exercise its substantive powers, as well as the authority to prescribe procedures for making such substantive decisions.
  • Nothing in the act can be read as authorizing the chairperson to prevent most of the board from presenting items to the board for a vote and decision, and, as far as the DOJ is aware, no one has ever taken the position that the act authorizes the chairperson to do so.

In response to the DOJ Office of Legal Counsel’s opinion, McHenry issued the following statement:

“House Republicans will not be deterred from our investigations into the lawless tactics of rogue Democrat regulators,” he said. “The newly released opinion from the Office of Legal Counsel does not change the fact that Democrats’ power grab at the FDIC upended an 88-year tradition of considering the [c]hair’s agenda on a collegial basis. The Biden administration’s support for Director Chopra and now Acting-Chair Gruenberg’s reckless actions calls into question its commitment to the independence of our financial regulatory agencies. After more than a year of [c]ongressional Democrats looking the other way as Biden’s regulators run roughshod over process, precedent, and jurisdiction, a House Republican majority will finally restore accountability through robust oversight.”

Legislation on Regulators’ Leadership Resurfaces

The resolution of the debate over the authority to approve the bank merger review will have a “major impact on how the FDIC handles that process in the future,” Bloomberg reports in an in-depth analysis of the issue.

It could even have an impact on future nominations at the nation’s financial regulators and under the Biden administration, “resulting in more moderate choices that can clear the evenly divided Senate.”

As chair of the FDIC, McWilliams was outnumbered by Democratic board members. The Federal Communications Commission also has a 3-2 Democratic majority and members of Congress have long called for the CFPB to be led by a bipartisan commission instead of a single director.

That’s where legislation comes into play.

Luetkemeyer proposed the FDIC Board Accountability Act in December 2021 in response to the leadership and decision-making debate at the FDIC, ACA previously reported.

The bill seeks to amend the Federal Deposit Insurance Act by requiring four of the FDIC board members to be appointed by the president “with advice and consent of the Senate.” One member should have state bank supervisory experience, one should have primary experience working in or supervising depository institutions with less than $10 billion in total assets, and the director of the CFPB should serve as a non-voting observer to the FDIC board.

Luetkemeyer has previously sponsored legislation to implement a bipartisan commission of the CFPB.

“If the need for a commission at the CFPB was not clear before, it certainly is now,” Luetkemeyer said in a news release. “Director Chopra is not only weaponizing the CFPB to attack U.S. industries, but he is now trying to control an entirely different regulatory agency.”

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