WASHINGTON — Banking lawmakers could be poised to take a more direct role in the regulatory process, depending on the outcome of a critical Supreme Court case on a cornerstone of administrative law known as "Chevron deference."
The Supreme Court earlier this week heard oral arguments for two cases that challenged the decades-old legal precedent, which says that federal courts should generally defer to an agency's interpretation of ambiguous statues, with some exceptions. While the legal question is usually framed —
At the very least, overturning the Chevron deference would change the dynamics of how banking policy is written by lawmakers, experts said. With respect to financial and banking policy, Congress would have to be more explicit in spelling out where agencies do and don't have the power to interpret and enact laws.
"Congress would need to write banking statutes that more specifically indicate what they want regulators to do — and this will be a relatively new skill for them," said David Zaring, a professor of legal studies and ethics at the Wharton School of the University of Pennsylvania. "Moreover, Congress does legislate in the banking space frequently."
The Supreme Court heard a lot earlier this week about how the doctrine has impacted Congress in the past, and how overturning it might change things in the future. Paul Clement, one of the lawyers arguing to overturn Chevron, gave an impassioned speech on the issue, blaming the doctrine for political gridlock, pointing specifically to crypto legislation.
Congress hasn't passed a crypto bill following the FTX failure, he said, "because there's an agency out there that thinks that he already has the authority to address this uniquely 21st century problem with a couple of statutes passed in the 1930s."
"It's really convenient for some members of Congress not to have to tackle the hard questions and to rely on their friends in the executive branch to get them everything they want," Clement said.
The theory is that Congress has an incentive to write laws broadly enough so they can take credit for doing something about a problem, but delegate the blame to agencies on how solving the problem actually gets done, and who will bear the costs, said Todd Zywicki, a law professor at the Antonin Scalia Law School at George Mason University.
"Right now Congress can write really vague legislation and then delegate to the agencies to fill in the gaps," he said. "Here's where it gets interesting — from this perspective of Congress as a whole this reduces Congress's power. From the perspective of individual members of Congress, by contrast, this can increase their power."
Members of Congress, this way, can directly and personally intervene with the agencies on behalf of interest groups and their own preferences, Zywicki said.
"They do this through letters, phone calls, private communications," he said.
The crux of the issue comes back to Congressional intent and how obvious it is. But that's not always an easy thing to figure out, and it often requires interpretation and judgment. Right now, agencies have a lot of leeway to interpret Congressional intent themselves, but in a post-Chevron reality, a lot will be subject to litigation.
In financial policy, for example, Zaring said that it's easy to imagine a fintech trade group, for example, adding a section to a lawsuit saying that Congress didn't clearly authorize the fintech charter.
That would put the pressure on Congress to pass laws that contain greater specificity, rather than leaving the responsibility to executive agencies to work out the details, said Erin Bryan, co-chair of Dorsey and Whitney's Consumer Finance Services Group. She said that overturning Chevron wouldn't give Congress more power than it already has, but it does place a lot of the policymaking onus on lawmakers.
Congress, however, does not have a stellar track record of passing legislation to address regulatory gaps proactively. Bryan said that she expects "even greater delays" between new issues popping up around new financial technologies and the enactment of meaningful regulation.
"If Chevron is overturned and agency rulemakings on crypto and AI are challenged, which they will be, then any meaningful technology regulation will depend on Congress making clear, specific, timely laws," she said. "Because of how quickly new technology emerges and evolves, it will be nearly impossible for Congress to proactively anticipate emerging risks and get ahead of them with effective legislation."
The impact of this is twofold, she said, hitting both consumers and tech businesses.
"This could hurt consumers, who may be harmed by the absence of guardrails in areas such as crypto and artificial intelligence, but it could also hamper innovation since uncertainty about the legal environment makes investment in new technologies riskier," Bryan said.
