WASHINGTON — President Donald Trump has
The NCUA is effectively inactive in many ways with Trump's removal of Todd Harper and Tanya Otsuka, the two Democratic board members of the regulator, before the end of their Senate-confirmed terms.
The regulator can still supervise credit unions, but with Republican Kyle Hauptman as the chairman and sole board member, it lacks a quorum to vote on any kind of policy changes, or potentially even enforcement actions if appropriate.
"It doesn't mean that supervisors can't go around and supervise credit unions and make their suggestions, but voting to initiate an enforcement action? It's not clear to me that the NCUA can do that anymore, and certainly can't do a rule-making change to capital rules, participate in some sort of Basel committee process if appropriate," said David Zaring, a financial regulation professor at Wharton. "It certainly means that there won't be any innovation coming, either innovation as far as regulatory relief, or innovation as far as new regulatory programs from the NCUA."
The Independent Community Bankers of America said the vacancies raise concerns about regulatory accountability.
"As credit unions aggressively expand beyond their congressional mandate to serve people of modest means with a common bond, who is overseeing this unchecked growth?" asked Michael Emancipator, ICBA's senior regulatory counsel. "Many credit unions now operate as full-service banks while enjoying a tax exemption — some with more than $1 billion in assets and actively acquiring community banks. Strong and consistent oversight from the NCUA is critical."
In addition to weakening oversight, Trump is also doubling down on a precedent he set in
"The removal of both NCUA Board members before their term is up is uncharted territory," said Dennis Dollar, former chairman of the NCUA and current owner of a credit union consultancy, Dollar Associates. "But President Trump has proven he is not afraid to plow new ground to get his regulatory agenda in place. He presently did the exact same thing at the Federal Trade Commission."
The FTC case has sparked a legal challenge, specifically around something called Humphrey's Executor, a precedent established in a 1935 Supreme Court case that says the president can't remove the heads of independent federal agencies.
The NCUA instance could begin legal action as well.
"The president can't just fire people the Congress confirmed for yearslong terms," said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition. "The Constitution isn't a set of suggestions. It's a framework for responsible government built on co-equal branches with carefully balanced responsibilities and interwoven accountability."
Harper's nomination as chairman of the NCUA was also, in one way, "unprecedented," Dollar said. Then-Chairman of the Senate Banking Committee Mike Crapo, R-Idaho, said that President Joe Biden's choice of Harper as chairman violated a prohibition on a board member serving successive terms, although the Department of Justice found that the first term Harper served was an "unexpired term," and that he was eligible for reappointment.
"So precedents have fallen now under both the Biden and Trump administrations," Dollar said. "Will this make the regulatory agencies like NCUA less independent? Probably."
The independent agencies that could be affected by the fall of Humphrey's Executor include a number of bank regulators.
Notably, it includes the Fed, which operates with a board including both Republican and Democratic members. Trump has in the past said he thinks he should have more say into interest rate policy, and although his nominees said that monetary policy should be insulated from political influence, neither Treasury Secretary Scott Bessent and Fed Vice Chair for Supervision nominee Michelle Bowman made the same promise for bank regulation during their Senate confirmation hearings.
"This is a prelude to them firing Jay Powell," said Aaron Klein, a senior fellow at the Brookings Institute. "If they can fire any Senate confirmed, previously-considered-independent regulator, they can fire them all."
Likely targets for this are boards with Democratic members, or those appointed under Democratic administrations. Jerome Powell, the chairman of the Fed, was originally appointed under Trump, similar to Harper, but was renominated by President Joe Biden.
"The President appears to be moving closer to justifying removal of Democrats on the Federal Reserve Board," said Jaret Seiberg, an analyst at TD Cowen, in a note. "By firing the two Democrats from the credit union regulator, the President is establishing the precedent that he has total discretion over financial regulators, which could include the Federal Reserve."
That said, it's not a straightforward jump to the Fed and Powell, Zaring said.
"So far it seems to me that the one difference between the Fed board and the NCUA is that the NCUA is mostly an organization of supervisors, and it seems to me that the President has the view that supervisory matters, he really ought to be in control of the bureaucracy and he should really be able to supervise people at will," Zaring said. "The Fed board members who are not vice chair for supervision, they could argue they're not engaged in financial regulation, but rather in monetary policy so should have their independence protected."
Regardless, bank regulation becoming more political is something trade groups and bank lobbyists have argued against for years.
"Regulations are better and more likely to be moderate enough to survive elections if they emerge from bipartisan boards," Seiberg said. "That gives banks the policy certainty they need to take advantage of policy changes."
Klein said that the erosion of political independence means that the financial system is less stable and the rule of law is less effective.
"If someone doesn't like their capital treatment, or the way their examiner is, make a donation to the president," Klein said. "And you know, if you don't do it, then your competing banker will."
