WASHINGTON — Even against the backdrop of a
McWilliams had said repeatedly that she planned to
That changed suddenly on Dec. 31 when the FDIC released McWilliams' letter to President Biden announcing her last day would be Feb. 4.
Her departure puts Democrats squarely in charge of the FDIC's future, giving them a head start on shifting the agency's policy focus 16 months ahead of schedule.
But the agency's immediate path forward is still coming into focus.
As Washington adjusts to a financial regulatory landscape firmly dominated by Democrats, here are four questions about the leadership shake-up and what happens next at the FDIC.
Why is McWilliams resigning?
In her resignation
It is unclear what ultimately led to her decision to resign. But McWilliams’ ability to control the agency’s agenda was called into question after the three Democratic directors — Consumer Financial Protection Bureau Director Rohit Chopra, FDIC board member Martin Gruenberg and acting Comptroller of the Currency Michael Hsu —
McWilliams challenged the move, saying only she could determine when the board votes.
Regardless of which side was right, the dispute made clear that McWilliams would face an uphill battle to get policy items through her board. Even if she chose to stay at the FDIC through the remainder of her term, her power had already been limited as a result of the board’s Democratic majority.
“It had become clear that she wouldn’t be able to reach an agreement with her board on anything of significance,” said Ian Katz, an analyst at Capital Alpha Partners, in a research note on Sunday.
If McWilliams chose to stay, Katz added, she could have focused the remainder of her term on slowing or blocking Democratic-backed policies that she opposed, such as M&A reform and climate risk assessments.
“But it’s questionable whether she could have done anything to stop the board’s Democratic trio — Gruenberg, CFPB Director Rohit Chopra and Acting OCC chief Michael Hsu,” Katz said. “McWilliams might have figured she was in a losing position and it would be pointless to hang around as a chair without authority.”
Who will govern the FDIC in the short term?
The most likely scenario is Gruenberg will become the interim head of the agency, taking the gavel for the third time since he joined the FDIC board in 2005.
Ordinarily, a vice chair becomes the acting chair if the Senate-confirmed FDIC chief leaves. But without a vice chair currently on the board, the gavel goes to the remaining internal FDIC director, who is Gruenberg. (Neither CFPB Director Chopra nor acting Comptroller Hsu can serve in that role.)
Gruenberg, who previously ran the agency from July 2011 until McWilliams was sworn in in June 2018, has been serving in a board term that technically expired three years ago. But he can remain on the board because neither the Trump nor the Biden administrations appointed a successor.
Analysts said the FDIC could begin to adopt policy changes on M&A, climate risks and financial technology relatively quickly under acting leadership to align itself with positions taken by other Democratic-led agencies.
"Director Gruenberg has called for data gathering on climate exposure risks and the consideration of climate risks in stress tests, saying 'We are behind the curve and we have a lot of ground to make up' — a further sign of accelerating actions that is likely to commence," said Ed Mills, an analyst with Raymond James, in a recent note.
However, even though Democrats would control the FDIC with Gruenberg as chair, the board could face questions from congressional Republicans and some in the banking industry about its mandate until the Biden administration appoints Senate-confirmed nominees for the three internal seats.
That could limit Gruenberg, Chopra and Hsu’s ability to set policy in the immediate future. In the aftermath of the FDIC board disputes, GOP lawmakers criticized Gruenberg's long tenure at the agency and proposed term limits.
What happens to FDIC governance over the longer term?
The impending FDIC leadership vacancy expands the administration's already-demanding workload appointing nominees to key regulatory jobs. The White House is expected soon to name a vice chair for supervision at the Federal Reserve Board, and the latest nominee to run the Office of the Comptroller of the Currency withdrew.
Biden theoretically could leave Gruenberg as the FDIC's acting leader, but it is more likely that he will send a nomination to the Senate. Still, the appointment process has proved messy at other regulators, the OCC especially.
The added twist for the five-person FDIC board is the vice chair and third inside director positions are also left to fill. Those positions would likely go to Republicans because no more than three members can be from one party.
Historically, presidents have sought input on those two appointments from senators in the opposing party. That mitigates congressional resistance to an administration's choice for higher-profile regulators, including the FDIC chair.
So the White House could theoretically consult on FDIC board picks with GOP leadership as well as with centrist Democrats such as Sen. Joe Manchin, D-W.Va. In the bitterly divided Senate, any support Biden could find for his nominees is important.
The broader political picture for the FDIC after the Biden administration is even murkier. Some analysts say that McWilliams’ resignation could mark a new era of
“At some point,” said David Dworkin, president and CEO of the National Housing Conference, “we’re going to have to ask ourselves: How tied to the political pendulum do we want our regulatory agencies to be, particularly when it swings back hard and fast?”
But others say partisanship at the agency was eased by McWilliams’ choice to resign rather than challenge the authority of her Democratic directors in court.
“We don't have closure on that question, but I don't know that it matters anymore,” said Karen Petrou, managing partner of Federal Financial Analytics. “These are matters solely within the FDIC’s purview — not to the White House.”
What will be the policy priorities of the Democratic-controlled board?
Democratic control of the FDIC removes a significant policymaking roadblock for the Biden administration by making it far simpler for the prudential bank regulators to pursue interagency policy in the coming years.
One of the more immediate impacts of McWilliams’ departure will be on the trajectory of
And though the FDIC is just one of several federal agencies to review banks’ mergers, having its policymaking synchronized with Democratic regulators elsewhere will make it simpler for the Biden administration to enact wide-reaching policy changes.
“We expect near-term pressure on financials on the accelerating regulatory shift, particularly for banks with pending deals that would form a combined entity with assets over $100 billion,” Mills wrote. “Regulatory scrutiny is likely to accelerate on pending deals, particularly for buyers BMO Harris Bank, U.S. Bancorp, Citizens Financial Group, and M&T Bank.”
An FDIC controlled by Democrats will also make it far easier for regulators to move in lockstep on the interagency modernization of the Community Reinvestment Act — a
“The ability for the Fed, the FDIC and the OCC to come together with a common plan for a notice of proposed rulemaking on CRA is not going to be easy, because the issues are complicated and there are genuine regulatory differences,” Dworkin said, “but this is going to be a much smoother path.”
There’s also the matter of climate-sensitive bank regulation, another Democratic policy priority which McWilliams had signaled reservations about in the latter portion of 2021. She was the only member of the Financial Stability Oversight Council to
There are other McWilliams-era policies implemented by the FDIC with which Gruenberg signaled disagreement, including the modernization of the regulatory framework around
