WASHINGTON — Compared to more incendiary fights in the capital, bank regulatory debates are traditionally more banal — led by officials who strive for consensus and leave their disagreements in the backroom.
But on recent policy issues ranging from the Volcker Rule to the Community Reinvestment Act, divisions among regulators have lately appeared sharper, more along political lines and more out in the open.
“Regulators aren’t always interested in singing off of the same sheet of music,” said V. Gerard Comizio, senior counsel at Fried Frank and a former attorney at multiple regulatory agencies. “But at the agencies where you have boards and commissions, there now are harder edges to the disagreements.”
The heightened discord was illustrated last month at a
Martin Gruenberg — the Democratic-appointed FDIC board member and former chairman, who has opposed nearly all the regulatory relief measures issued during the Trump administration — spent nearly 20 minutes tearing into the proposal. That followed his 11-minute dissent on a final rule amending a disclosure requirement.
Comptroller of the Currency Joseph Otting, who holds a seat on the FDIC board, had heard enough. He said the proposal would allow activities that were not intended to be targeted by the Volcker Rule.
“Unlike my colleague on the board who has a tendency to cry wolf whenever we modify these rules to ensure that capital reaches American consumers and businesses, I feel these changes help to focus on the activities that present, really, the greatest dangers to our financial system," Otting said, looking at Gruenberg. The remark turned heads around the room and prompted Gruenberg to sit back in his chair, eyebrows raised.
Such a comment directed at a policy opponent is commonplace in Congress, the mainstream press or social media. But the moment underscored what many see as a stark reality: the ability of the regulators to walk in lockstep is cracking.
“For a long time, the banking agencies were immune from polarization,” said one former senior regulator who spoke on the condition of anonymity. “But this is a reflection of the climate — it’s a reflection of a current administration that’s comfortable trampling on norms.”
To be fair, the agencies agree more than they disagree. Concerns raised by Democratic appointees such as Gruenberg and Federal Reserve Board Gov. Lael Brainard about reforms they say are too generous to the industry are heard, but then the agencies — all led by Trump administration appointees — still move forward.
In a statement to American Banker, Otting downplayed any conflict between the agencies or board appointees, describing 2019 as “a banner year for rulemaking and cooperation.” He argued that the agencies are in sync.
“That work could not have been achieved without the positive cooperation among all of the regulators at the staff and leadership levels,” Otting said. “We should not mistake discourse for constructive dialogue and keep in mind that healthy debate often leads to better decision-making.”
Tom Curry, Otting’s predecessor at the Office of the Comptroller of the Currency, agreed that there is nothing exceptional about the recent disagreements among regulators.
“In a policy speech, at a board meeting — these are appropriate places to lay out policy positions or disagreements from the minority,” said Curry, a partner at Nutter. “You’re laying out arguments one way or the other. If everyone agrees all the time, what good is it?”
But for many outside government, a new tone in agency deliberations has been difficult to ignore. A clear sign, they say, is the wedge between the OCC and Fed on how to reform the agencies’ CRA framework.
After the Fed decided
Otting, later meeting with reporters, dismissed Brainard’s remarks. He suggested that since the Fed has not yet released its own proposal, it is hard to take Brainard’s comments seriously. (Fed Chairman Jerome Powell has since endorsed Brainard’s speech.)
“If you really think about it, I could give a speech on tiddlywinks tomorrow,” Otting said, referring to a children’s board game.
Many observers said the current tenor of debates deviates from what had been the norm under previous leadership of the agencies. Regulators butted heads behind the scenes, and sometimes in public, but officials strived to reach consensus in final rules across agencies and political parties.
A notable example was the effort in 2014 to raise a
“Go back even five years, and there was much more consistency between the two boards [of the FDIC and Federal Reserve] and the comptroller,” said Mike Krimminger, a partner at Cleary Gottlieb and former general counsel for the FDIC. “There was widespread agreement on capital rules, interaffiliate margin swaps, etc. There were certainly disagreements behind closed doors, but the conflicts were muted.”
Comizio said forming a consensus in rulemaking is important to reach a policy outcome that is sustainable from one administration to the next, while partisan disagreement can have the opposite effect.
"It boils down to the question of whether the respective parties, majority and minority, are actually dealing with and listening to senior staff,” he said. “Everyone needs to be willing to have an open mind and hear everyone else out, blend the ideas and come up with a joint approach. If you don't, the credibility and gravitas of the regulators comes into question.
“If an agency is constantly handing down rules with dissent — substantial, major dissent — that can have a destabilizing effect, even if the industry likes the rules. Administrations change.”
Gruenberg’s policy dissents — always lengthy and technical — have become almost as commonplace as rulemaking itself at the FDIC. In the past 12 months, Gruenberg has dissented on proposed changes to the CRA,
Yet those dissents have not impeded the policy priorities of the Trump administration-appointed regulators, and the industry has lauded the agencies for simplifying and streamlining pieces of the Dodd-Frank Act regulations.
Some observers said today’s conflicts may be less about policy disagreements or breakdowns in communication than simple party alignment.
“If you look at the political persuasions of the dissenters versus the reformers, it’s suggestive of what’s going on,” said Lawrence Kaplan, chair of bank regulatory policy at Paul Hastings. “You have Republican appointees on the one side coming in, making changes to what is typically viewed as burdensome sets of rules, recognizing that sometimes a rule doesn’t work as intended. But when you look at other policymakers who were appointed by Democrats, they often are only trying to protect rules adopted by prior administrations.”
“One camp says no changes can be made — that it’s not appropriate, while the other says changes are needed,” Kaplan said. “In effect, these become ideological positions.”
