WASHINGTON — Discord on the Federal Deposit Insurance Corp. board deepened Tuesday as Trump-appointed Chair Jelena McWilliams and the three Democratic directors refused to waver from their positions in a dispute over the agency's governance.
During a public meeting that grew heated at times, McWilliams rejected a motion by Consumer Financial Protection Bureau Director Rohit Chopra that board minutes include his recent notational vote with the two other Democrats to request public comment on bank merger policies.
"The legal division has previously determined, and the general counsel communicated to all board members, that these actions did not constitute a valid circulation of a notational vote and therefore the document cannot be added to the minutes," McWilliams said. She added that Chopra's motion was out of order.
Chopra, FDIC board member Martin Gruenberg and acting Comptroller of the Currency Michael Hsu last week had voted to issue the request for information without McWilliams, but the agency has refused to acknowledge the vote. The episode has raised questions over who controls the agency's agenda: McWilliams or the board.
The CFPB chief, a progressive regulator appointed by the Biden administration, indicated after the meeting — which had been previously scheduled to approve the FDIC's budget — that the three Democratic directors may make additional attempts to assert their authority.
“We cannot risk having a paralyzed board, especially if action is urgently needed in times of financial system distress,” Chopra said in a statement released after the meeting. “Absent a return to legal reality and constructive engagement, board members will need to take further steps to exercise independence from management and to ensure sound governance of the Federal Deposit Insurance Corporation.”
The turmoil, which came to light Dec. 9 as Chopra and Gruenberg announced the notational vote, has stoked uncertainty about the authority of the board to carry out agency business versus that of McWilliams.
Some have criticized the three Democrats for essentially working behind McWilliams' back, but others say McWilliams is undermining majority board rule and that the other directors may need to take more drastic measures.
“If McWilliams isn't going to let staff effectuate the valid policy of the board of directors, the board of directors needs to find staff who will be loyal to them,” said Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress and a former FDIC attorney. “And I think potentially that means removing the executive secretary, general counsel or chief of staff and replacing them with folks who are loyal to the majority.”
An FDIC spokesperson disputed the idea the board could fire senior personnel without the chair's support. "Consistent with decades-old personnel delegations from the board of directors, officers of the corporation can be removed by the board only upon the recommendation of the chairperson," the spokesperson said.
Board dynamics at the FDIC have traditionally been calm and uneventful, but the sudden rift could upend policy at the agency for a while, observers said.
“The only question is whether or not a holdover, who disagrees with the views of the majority of the FDIC board, gets to impose her view, the minority view, on the majority of the board. It's a very basic legal question that courts deal with all the time,” said Dennis Kelleher, president and CEO of Better Markets.
At one point during the board meeting, Gruenberg, the former head of the agency, attempted to support Chopra's motion but was denied by McWilliams.
"Chairman, I would just like to note for the record that I second the motion made by Director Chopra," Gruenberg said.
"OK. That motion was inappropriate," McWilliams replied. "So I thank you for your comments, Director Gruenberg."
In his statement after the meeting, Chopra said he had been concerned since joining the board in October about "representations made by certain Corporation officers about board governance."
"In my board member orientation, I was informed that it was the view of the Board’s General Counsel that board members may not raise matters for discussion in board meetings, and only the Chairperson has this right," he said. "Although the Corporation’s bylaws specifically authorize two board members to call for special meetings, the General Counsel has taken the perplexing view that those board members cannot guarantee that any topics will actually be discussed."
He said the three Democratic board members had circulated a draft request for information that was meant to follow up on a July executive order by President Biden calling for actions to promote competition in the economy, including that bank regulators review policies related to the Bank Merger Act.
But the draft was not considered because of the agency's "improper assertion" that McWilliams can veto any matter that comes before the board, Chopra said.
He indicated that McWilliams later offered an alternative version "with a series of strings attached."
"This approach to governance is unsafe and unsound. It is also an attack on the rule of law," Chopra said.
Chopra was joined shortly after by Hsu, who said in a brief statement: “I believe the views of the majority of the FDIC Board members should influence the agency’s agenda and actions.”
At the same time, however, Hsu said he remained “concerned that legal or procedural quicksand may ultimately limit our ability to act” on the review of bank merger policy, according to the statement.
How far will Democrats go?
Even as the unprecedented governance conflict between FDIC board members deepens, it remains unclear how and when the dispute will actually be resolved. McWilliams’ term lasts until 2023.
Most analysts expect the conflict to eventually spill into court.
Kelleher argued that the Democratic majority of the FDIC board would be within its legal rights to request that a judge resolve the question of board authority via
“You just have to look at the statute, the bylaws and make a decision. And the court will make that decision, and then whoever loses it will appeal it, and then the appeals court will decide, and then you're basically done,” Kelleher said.
There are some analysts who believe that compromise between Democrats and Republicans on the board remains a future possibility.
“I’d like to see the genie put back in the bottle here and see them go forward with a regulatory agenda reflecting the administration’s priorities, but done collaboratively in the fact-based, policy-based style that has served bank regulation well over time,” said Todd H. Baker, a senior fellow at the Richman Center at Columbia University and managing principal at Broadmoor Consulting.
If McWilliams were to ultimately work with her board’s majority on the bank merger request for information, the power struggle could abate — at least temporarily.
“They may agree to some minor changes to the document — it’s only an RFI — and then get it out as an official FDIC release, and life goes on,” Baker said. “She doesn’t have to ultimately resolve the question of who controls the agenda.”
But Baker also emphasized that McWilliams’ current position — that her authority over the board’s agenda is absolute — is likely untenable.
“Turning ‘I control the agency agenda’ into ‘I have veto power over majority director actions that can’t be overridden by anyone’ is an extreme position by any standard,” Baker said, “which isn’t supported by past agency practice.”
Still, some advocates sense an opportunity for more dramatic changes to unfold at the FDIC, and more quickly, which could allow Democrats to pursue ambitious financial policy on an interagency basis until McWilliams' term expires.
“It depends how far the Democrats are willing to go,” said Phillips.
But others suggested that the Democratic board members' actions reflect a political motivation that was separate from the FDIC's interests.
"When you're in that boardroom and you're representing the FDIC on the record, and you're voting, put the FDIC’s interest first," said Joseph Neely, a former FDIC board member appointed by President Bill Clinton in the 1990s as a Republican. "Leave your personal and political motives and agendas at the door. Maintain the integrity, the independence and the charter and the mission of the FDIC — that's what's important."
