A coup at the FDIC breaks norms and signals more political control of finance.
Elizabeth Warren finally got her woman—that is, the Senator and her many acolytes in the Biden Administration have succeeded in ousting Jelena McWilliams as chair of the Federal Deposit Insurance Corp. The coup deserves attention because of its norm-breaking precedent and what it signals for bank mergers and supposedly independent regulatory agencies.
Ms. McWilliams resigned on Dec. 31, effective Feb. 4, to avoid more turmoil at the bank regulator. But as she wrote in these pages on Dec. 16, her resignation comes amid a concerted and unprecedented political effort to strip her of authority before her term as chair expires in June 2023.
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The coup has been led by Rohit Chopra, the Warren protege who now runs the Consumer Financial Protection Bureau and is one of four current members of the FDIC board (one post is vacant). The FDIC’s longstanding practice and bylaws, based on its interpretation of the law, is that the chair sets the board’s agenda.
Enter the Warren-Biden progressives in a hurry. The Senate confirmed Mr. Chopra on Sept. 30 on a 50-48 vote, and as soon as Oct. 31 he presented Ms. McWilliams with a request for information (RFI) on bank mergers. When she said the draft RFI would have to be vetted by FDIC staff, Mr. Chopra publicly released his own RFI without authority from his post at the CFPB, which the FDIC was obliged to contradict.
Mr. Chopra then moved to neuter Ms. McWilliams by other means. He has asked the Office of Legal Counsel at the Justice Department for an opinion on whether Ms. McWilliams can set the agency’s agenda. In a Dec. 14 statement, Mr. Chopra also threatened to “take further steps to exercise independence from management” of the FDIC.
This distorts the meaning of agency “independence,” which is supposed to be from the executive branch. Mr. Chopra cites President Biden’s July 9 executive order referring to bank mergers, but the FDIC has long held that it is not subject to executive orders on policy. Mr. Chopra wants to make the FDIC a de facto part of the Biden Administration. Who knew the left endorsed the originalist constitutional theory of the “unitary executive”?
Our sources say the plan was for Mr. Chopra and his allies on the board—Mr. Gruenberg and acting Comptroller of the Currency Michael Hsu —to change the FDIC bylaws and strip Ms. McWilliams of her power. Ms. McWilliams made the honorable decision to spare the agency more internal fighting, but her resignation means Mr. Chopra will now essentially run the show. Mr. Gruenberg will become acting chair. He will follow where Mr. Chopra wants to go, as he showed by signing a jo--t statement with Mr. Chopra on his draft RFI on Dec. 9.
The real power behind all this is Sen. Warren, who has planted her aides and camp followers throughout the Biden Administration. She may have lost the 2020 Democratic primaries to Mr. Biden, but she has colonized the government’s financial regulatory offices.
Her former staffer, Bharat Ramamurti, is deputy director of the White House National Economic Council. His fingerprints were all over the failed nomination of Saule Omarova to be Comptroller of the Currency. Wally Adeyemo, who helped Ms. Warren establish the CFPB, is now deputy Treasury secretary. Lina Khan runs the Federal Trade Commission. Graham Steele, a former aide to Warren Senate ally Sherrod Brown, is assistant Treasury secretary for financial institutions. There are many others.
One result is that Treasury Secretary Janet Yellen seems to have little influence over financial regulation. Ms. Omarova wasn’t her choice for Comptroller. Ms. McWilliams sought her support for the FDIC’s traditional independence, but Ms. Yellen refused. Her main job these days seems to be telling the public not to worry about inflation.
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What do these Warren cadres hope to accomplish? One clear goal is greater influence over the allocation of credit. Using regulation to squeeze financing for fossil fuels will be a priority. Bank mergers are a political target because regulatory approval can be exploited as a tolling station to coerce money for “local communities,” to use Mr. Chopra’s euphemism for progressive political groups.
Mr. Chopra also wants to reinterpret the law to make it easier to block bank mergers, notably those that have more than $100 billion in assets. This is a coordinated effort. His Dec. 9 RFI mentioned that figure. On Dec. 10 Maxine Waters sent a letter to federal officials urging a moratorium on bank mergers above $100 billion. On Dec. 17 the Justice Department’s Antitrust Division issued a press release praising Mr. Chopra and promising heightened antitrust review of bank mergers.
The irony is that regional banks are merging to gain economies of scale to compete with giant banks. The 2010 Dodd-Frank Act increased compliance costs, which the biggest banks find easier to afford. Blocking mergers of regional banks will enhance the market power of JP Morgan and Bank of America.
By undermining the independence of federal agencies, Democrats are also creating a precedent that the GOP will follow. The next Republican President will promptly fire the next FDIC chair, among other officials.
The FDIC coup should also focus the Senate’s attention on Mr. Biden’s pending nominees for the Federal Reserve, another supposedly independent bank regulator. Anyone who endorses the FDIC coup shouldn’t be confirmed.
Democrats claim that Trump Republicans broke political norms, and sometimes they did. But one reason is that they see how progressives trample norms when they have power. Watch the Warren left in action.