Banking

Biden’s banking picks shouldn’t expect Yellen treatment

WASHINGTON — Anyone witness to the recent hyper-partisan environment might take note of the Senate’s confirmation of Treasury Secretary Janet Yellen. Most Republicans backed her nomination in an overwhelming show of support.

Compare that to the Senate’s vote on President Trump’s former Secretary Steven Mnuchin four years ago, when he drew the backing of only one Democrat, Joe Manchin of West Virginia, and was confirmed by a razor-thin margin.

The 84-15 vote for Yellen — following her relatively cordial nomination hearing — has made some analysts wonder if Congress might take a more bipartisan approach to confirming and overseeing President Biden’s banking regulators.

“What I think you’ll see is Republicans giving a pass to nominees where that is the politically feasible thing to do, and then picking a handful of figures on the much more progressive side to really hammer in confirmation hearings over their plans for the agency to which they’ve been nominated,” said Travis Norton, an attorney with Brownstein Hyatt Farber Schreck.

Over the past four years, Democrats on the two banking committees in Congress focused on being a thorn in the side of Trump administration regulators. Many observers believe the GOP, now in the minority in both chambers, will take a similar tack with Biden’s appointees. Republicans will be led by Rep. Patrick McHenry, R-N.C., on the House Financial Services Committee and Sen. Pat Toomey, R-Pa., on the Senate Banking Committee.

Democrats on the Senate Banking and House Financial committees were a thorn in the side of Trump’s regulators. Many observers believe the GOP, led by Sen. Pat Toomey, R-Pa., and Rep. Patrick McHenry, R-N.C., will take a similar tack with Biden’s appointees.

Bloomberg News

“The sub-cabinet appointees and the regulators are the ones that formulate and implement the financial services policy for the administration, that’s where the rubber meets the road,” said a financial services lobbyist who spoke on the condition of anonymity. “And that’s where you will likely have more contentious hearings.”

Still, Yellen was confirmed 84-15 less than a week after a confirmation hearing before the Senate Finance Committee that was virtually free from contentious exchanges. Yellen has long had support from both sides of the aisle after having previously been confirmed and served as head of the Federal Reserve.

“We had a good working relationship while you were at the Fed and I look forward to developing and continuing that good working relationship as we move forward,” former Senate Banking Committee Chair Mike Crapo, R-Idaho, said at the hearing.

The Biden administration is reportedly closing in on selecting Federal Trade Commission member Rohit Chopra to lead the Consumer Financial Protection Bureau, and former Obama Treasury official Michael Barr to lead the Office of the Comptroller of the Currency. Both have already gone through the Senate confirmation process for prior jobs, but their progressive policy backgrounds are likely to cause GOP consternation.

Ed Mills, a policy analyst with Raymond James, said Yellen’s easy path to confirmation resulted both from her extensive experience in Washington, but also a push for more unity from lawmakers after pro-Trump rioters stormed the U.S. Capitol days before Biden’s inauguration.

“There is honest, bipartisan support for her. She was someone who was viewed as doing an excellent job as Fed chief,” Mills said. “So opposing her or attacking her at a hearing, at this point just doesn’t match the moment. In and around the time of a call for unity, there is a political risk to coming across as the first individual or group to break that unity.”

But Mills said the tone from Republicans will likely shift from Yellen’s muted hearing to heavily scrutinizing Biden’s choices to lead the financial regulators once they are set in stone.

“There is no doubt that when it comes to the confirmations of other bank regulators, especially the CFPB, OCC, if there is an opening at [the Federal Housing Finance Agency], Republicans are going to be very skeptical, have a very different tone, and raise what they view as very legitimate concerns about the nominees,” Mills said.

Norton agreed that Republicans questioning Yellen were likely saving their criticism for future progressive nominees.

“Republicans will pick and choose their spots to be combative on Biden nominees,” he said.

Democrats have signaled that they plan to address issues like climate change and racial inequality through financial regulations. Some lawmakers have proposed for regulators to conduct climate-related stress tests on the largest financial institutions.

Mills said Republicans will likely criticize Biden’s regulators if they take on policy issues outside of the traditional banking space.

“I think that the overarching concern that I anticipate Republicans have is that Democrats have signaled very strongly that they would look to expand how regulators think about a variety of new issues, which includes climate change, social justice, systemic racism, income inequality,” Mills said. “Similar to what we have seen from Republicans for years about concerns of turning the judiciary into an activist branch of government, there is going to be growing concerns that some of the Democratic nominees would be turning parts of the executive branch into a more activist regulatory regime.”

Norton said Chopra’s progressive track record could make him a target for Republicans.

“Republicans will give Chopra a hard time because he because he is a progressive on financial services issues,” he said. “I also think it does not do the financial services industry any good to have consumer financial services policy whipsawed every four years upon the election of a new president.”

Mills added that he would be “surprised” if a single Republican votes to confirm any Biden CFPB director.

Meanwhile, a nominee for comptroller of the currency will likely be pressed by Republican senators not to reverse a last-minute rule by former acting Comptroller Brian Brooks that bars banks from discriminating against controversial industries, including firearms manufacturers and fossil fuel firms.

“The ‘you can’t discriminate against certain industries’ rule, I think I could see members definitely questioning Barr on that,” said a former Republican congressional staffer. “That’s like a lightning rod issue.”

Republicans have also supported the OCC’s recent changes to the Community Reinvestment Act and may scrutinize a new comptroller if the rule is revisited.

“Republicans don’t have any problems with the idea of making lending accessible, or being inclusive,” the former congressional staffer said. But the former staffer added that Republicans are skeptical of regulatory policy that would force money “to flow through community groups who are politically active.”

But even as Republicans are expected to act as the loyal opposition to the Biden administration’s regulatory agenda, the party will be limited in its oversight, since Democrats control the committee agenda in both chambers of Congress.

“Frankly, Republicans’ ability to conduct oversight is going to be very limited, because they don’t have any of the gavels,” said Dan Crowley, a partner at K&L Gates. “They can’t convene hearings. They can’t compel witness testimony. They pretty much are relegated to posing tough questions when the Democrats decide to have a hearing on a particular topic.”

Norton said that Republicans might have a difficult time defending some of the Trump administration’s last-minute rulemakings that Democratic critics want the new admininistration to reverse.

“The manner in which the bank regulatory agencies undertook rulemaking at the end of last year presented some unnecessary political challenges that make it harder for Republicans to open that topic without being seen as acting politically,” Norton said.


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