McWilliams was at odds with FDIC board members over their authority to propose actions—in this case, a review and public comment on FDIC bank merger policies—without approval of the chair. She will resign effective Feb. 4.
01/03/2022 3:30 P.M.
4.5 minute read
The power struggle over bank mergers and the role of the Federal Deposit Insurance Corp. (FDIC) board and chair in related decisions escalated last month to the point where Chairwoman Jelena McWilliams announced her resignation effective Feb. 4.
Her term was set to end in June 2023.
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, ACA International previously reported.
“This marks the beginning of a careful review of the effectiveness of the existing regulatory framework in meeting the requirements of the Bank Merger Act,” according to the joint statement. “Effective implementation of the Bank Merger Act has deep implications for the safety and soundness, financial stability, community accountability, and competitiveness of the banking system. We strongly support this [r]equest for [c]omment.”
McWilliams, a Republican member appointed by former President Donald Trump, responded the same day that the bank merger review had not been approved.
“Throughout my tenure, the agency has focused on its fundamental mission to maintain and instill confidence in our banking system while at the same time promoting innovation, strengthening financial inclusion, improving transparency, and supporting community banks and minority depository institutions, including through the creation of the Mission Driven Bank Fund,” McWilliams said in a news release announcing her resignation. “Today, banks continue to maintain robust capital and liquidity levels to support lending and protect against potential losses.”
Gruenberg is Interim FDIC Leader
Gruenberg will serve as interim chair of the FDIC until President Joe Biden nominates a replacement who is approved by the U.S. Senate.
McWilliams did not mention the disagreements with the board in her resignation announcement to Biden, but leadership issue discussions at the FDIC and other banking regulators will remain at the forefront on Capitol Hill, according to media reports.
Gruenberg served as chair of the FDIC during former President Barack Obama’s tenure. Biden has to fill positions on two other top banking regulators: the Federal Reserve and the Office of the Comptroller of the Currency.
“The president is expected to soon tap a vice chair of supervision at the Federal Reserve, while his pick for comptroller of the currency recently withdrew after facing opposition from moderate Democrats,” Politico reports.
“For now, Gruenberg, who has been serving at the FDIC on an expired term for three years, gets to retake the gavel. The Obama-era chair of the agency took the unusual step of staying on as a board member after his leadership role ended and then dissented regularly against actions by McWilliams to loosen rules on banks of all sizes. McWilliams’ departure could lead to the reversal of some of those moves,” according to the article.
Could Banking Relationship Issues and Operation Choke Point Resurface?
Gruenberg was with the FDIC when the controversial Obama-era program Operation Choke Point—in which the FDIC and U.S. Department of Justice reportedly applied pressure to financial institutions to cut off financial services to certain licensed, legally operating industries, including debt collection—occurred.
After taking the role as chair, McWilliams—in response to a request from U.S. Rep. Blaine Luetkemeyer, R-Mo.—called for an investigation into Operation Choke Point, ACA previously reported.
While the latest issues for the FDIC stem from the banking mergers proposal and the board’s authority to sidestep the chair’s approval, ACA is monitoring the issue for risks—including other measures like Operation Choke Point.
Legislation on Regulators’ Leadership is Back
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 reported in an in-depth analysis of the issue published before McWilliams announced her resignation.
U.S. Rep. Maxine Waters, D-Calif., chair of the House Financial Services Committee, sent a letter to McWilliams before she resigned with a request “to cite the legal authority she’s relying on in her attempt to block the FDIC [b]oard [m]ajority from seeking the public’s input on strengthening the bank merger review process. The letter also urges the FDIC [c]hairman to reconsider her position, and to instead collaborate with [b]oard [m]embers and other regulators to improve bank merger review procedures,” according to a news release.
The request is pending and is among the leadership questions that remain unresolved at the FDIC, Politico reports, “such as whether future FDIC boards will be able to use a majority vote to overrule the chairman.”
Meanwhile, Luetkemeyer proposed the FDIC Board Accountability Act in response to the leadership and decision-making debate at the FDIC last month.
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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