WASHINGTON — Before Chairman Sheila Bair staked out a consumer-focused agenda at the Federal Deposit Insurance Corp., its leadership already had a well-established interest in consumer issues.
Her predecessor, Martin Gruenberg — the current vice chairman and the acting chief from November 2005 to June 2006 — brought to the agency experience shaped by almost 20 years of work for then-Sen. Paul Sarbanes, a consumer-minded Democrat on the Senate Banking Committee.
Since his stint as the acting chairman, Mr. Gruenberg's ties to Congress and his philosophical unity with Ms. Bair, a Republican, have helped him stay influential at an agency where vice chairmen previously have remained relatively quiet.
"One, there's an advantage of being aligned with the vision and leadership of the chair," said Robert Gnaizda, the policy director of the Greenlining Institute. "Two, he has enormous experience and credibility and … influence, direct and indirect," with the Democratic leaders of the congressional financial committees "and the black and Latino caucuses, which respect him."
The two leaders are in lockstep on the agency's conservative stance on the Basel II capital accords and in Ms. Bair's efforts to encourage banks to serve the unbanked. Overall, the leaders echo each other in following a message of an FDIC focused on consumer confidence.
"For the average person today, the financial services market is very intimidating, in terms of the complexity that people confront with the different financial products," Mr. Gruenberg, 54, said in an interview last month. "They look for help in trying to sort through them, and … the banking agencies have a very important role in that area."
Despite a desire to keep a low public profile, he has been involved with several hot button topics, including Basel II. The FDIC vice chairman traditionally has taken a lead role in the agency's international efforts, so Mr. Gruenberg has been on the forefront of deliberations over the capital plan.
Like Ms. Bair, he was concerned that the plan would result in a rapid capital decline at the largest banks. The FDIC has pushed the hardest among the federal regulators for 10% aggregate capital floors in the final regulation to bolster risk management. A compromise agreement in July proposed to drop those floors, but Mr. Gruenberg said his agency won a key concession in a study that requires regulators to re-evaluate keeping the floors if they determine there are problems after two years.
"We're not going to move forward with removing the transitional floors that we've put into place until we're satisfied that there aren't material deficiencies in the operation of the regulation," said Mr. Gruenberg, who has given several speeches on the topic. "From our standpoint, it was a very reasonable balance that was struck, and we're going to try and move forward on this."
He has not always sided with the agency's leadership. Shortly after joining the FDIC in August 2005, he found himself at odds with then-Chairman Donald Powell, who was urging the agency to pass a proposal that would let state-chartered banks preempt host-state consumer protection laws. Though it was released for comment by a vote of 3 to 2, with Mr. Gruenberg voting against it, the plan was not finalized before Mr. Powell left in November of that year.
The preemption measure is not expected to see the light of day under Ms. Bair.
"It was not the role of the FDIC to get into the preemption debate," Mr. Gruenberg said.
Mr. Powell's departure left Mr. Gruenberg as the agency's acting head for nearly eight months. During that time he had to deal with possible bank failures caused by Hurricane Katrina, continuing controversy over Wal-Mart Stores Inc.'s application to charter an industrial loan company, and banks' relationships with payday lenders.
He agreed with calls from Wal-Mart opponents to hold unprecedented hearings on the bid, but he steered clear of making a policy call on it until a new FDIC chairman could be sworn in.
Though many say Mr. Gruenberg opposed the application, which the retailer pulled in March, he will not say how he feels about commercially owned ILCs. The FDIC may have to revisit the question if Congress does not pass a bill on the issue before Jan. 31, when the agency's self-imposed moratorium on applications by commercial companies will expire.
"We've come to a good place as an agency on that issue," Mr. Gruenberg said. "If it comes before us, and we have to make a judgment, I'll obviously express a view then."
He made it clear, however, that he agrees with Ms. Bair that it would be best for Congress to handle the issue. "The ILCs raise important issues relative to banking and commerce and holding company regulation," he said. "For a broad issue like that, in some sense, it's really best if possible for the legislative branch to address it, rather than for the regulator to try to make the judgment."
Though Mr. Gruenberg will not offer an opinion on whether commercial companies should own ILCs, many say he shares the views of his former boss, Sen. Sarbanes, who strongly opposed the mixing of banking and commerce.
But Mr. Gruenberg, who called his time with Sen. Sarbanes "without a doubt the most important professional experience of my life," shies away from assumptions that he is a philosophical replica of the Maryland Democrat. "I worked for Sen. Sarbanes for a long time, and I share his values … but you can't assume that simply because I worked for him there is a way I'm going to come out on a certain issue. You have to take them one by one."
Observers agreed that Mr. Gruenberg's experience as a Capitol Hill staff member likely gives him an edge on others in the position. They attributed his good working relationship with Ms. Bair (a former aide to then-Sen. Bob Dole) to the fact that both have worked on the Hill.
Ms. Bair's "own commitment to the public interest … creates an optimal situation for a deputy chairman to work well with a chairman," said a former Senate aide, who spoke on the condition of anonymity. "They share the experience of being Senate staffers, which inclines one to seek workable solutions."
As a senior counsel to Sen. Sarbanes, Mr. Gruenberg gained a familiarity with virtually all the banking issues facing the regulators, including deposit insurance reform. "Marty comes to it with considerably more experience than most FDIC vice chairs, who are often community bankers or others who lack the policy background that Marty has," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc.
Observers said his experience helps explain why Mr. Gruenberg deferred any major decision on Wal-Mart's ILC application until after a new chairman was appointed.
"It's not as if you've been nominated and confirmed to be chairman," Mr. Gruenberg said. "You don't know how long you're going to be an acting chairman. … You have to act with a bit more caution. At the same time, you've got responsibilities, and the agency has to move forward."
He took a more active role in the aftermath of Hurricane Katrina, when several banks were thought to be on the brink of failure. During his stint as the acting chairman, no bank failed, and Mr. Gruenberg visited the Gulf Coast area several times so he could keep lawmakers well informed.
"It paid him and, quite frankly, the FDIC pretty significant dividends," said another Hill aide.
Mr. Gruenberg said the agency "to its credit was pretty helpful" in the area hit by the hurricane. "Most of those institutions are state-chartered nonmember banks. Our people down there in the Dallas region really worked hard with those institutions and did a good job helping them to get through this."
As the acting chairman, he also oversaw an effort to persuade several banking companies to cut ties with payday lenders. Though he said the effort involved "supervisory actions related to safety and soundness," both he and Ms. Bair have criticized payday loans' effects on consumers.
Mr. Gruenberg sits on an advisory panel Ms. Bair started in June to develop ways to serve the underbanked. Its first action was a test program for banks to offer small-dollar loans to consumers who may rely on payday lenders.
The industry is wary of the program, asserting that the agency is ignoring the cost banks will suffer for a social benefit. Mr. Gruenberg disagrees and argues that economic inclusion fits with the FDIC's historic role.
"Economic inclusion is what the FDIC was about when it was created to bring people back into the banking system after the large bank failures during the Depression," he said. "Banks have a particularly important role to play, because they can offer not only a particular loan, but a range of financial services and savings and credit opportunities.
