WASHINGTON — Amid a chorus of "good enough," Michael Barr’s nomination signals a low tide for progressive lawmakers who have spent the last year pushing the Biden administration and their moderate Democratic colleagues to nominate and confirm liberals to top financial regulatory posts.
Barr, who the Biden administration recently announced as the nominee for the top Federal Reserve bank cop, represents the more moderate side of the Democratic bench. Progressives previously opposed him as the potential pick for comptroller of the currency over his recent work advising for crypto and fintech-friendly companies, such as his stint as an advisor to Ripple Labs, and on his work after the 2008 financial crisis that some Democrats said was too soft on financial institutions.
But since then, Republicans have dealt some significant blows to President Joe Biden’s financial regulation picks. Sarah Bloom Raskin’s withdrawal from consideration as vice chair of supervision and Saule Omarova’s doomed nomination have left key regulatory positions unfilled, making it difficult for Democrats to fully pursue their policy agenda.
So this go-around, progressives aren’t putting up as big of a fight.
“It seems that this time around, everyone on the Democratic side, including the progressives, are saying, 'You know what, we’re just going to have to live with him,' ” said Ian Katz, managing director at Capital Alpha Partners.
Barr doesn’t come with the same kind of baggage that picks like Raskin and Omarova did, Katz said, and he’s less likely to ruffle the feathers of centrist Democrats such as Sen. Joe Manchin, D-W.Va. Much of Barr’s work and writing in recent years has focused on consumer protection and disbursing pandemic aid, not hot-button issues like climate change that helped scuttle Raskin’s nomination.
“To me, he seems pretty center-of-the-road for the Democrats,” said Derek Tang, a co-founder and economist at Monetary Policy Analytics. “He has done things that have not pleased Republicans, and while he's able to work across the aisle, he's not someone who's straddling both parties in any way."
“He is very clearly a Democrat, he's just not as progressive as the progressives would like him to be," Tang said.
And the political calculus has changed substantially for the Biden administration, Katz said. With limited time until the midterms and a potential change in Congress, the White House is more concerned with appealing to moderates, rather than progressive lawmakers like Sen. Elizabeth Warren, D-Mass.
“I think that’s the feeling: that this position has been open since October, and we gave it a try with Raskin, we tried with the OCC with Omarova,” Katz said. “The White House’s view is, 'Let’s nominate someone who can get confirmed and get them in there.' ”
The political landscape
On Capitol Hill, progressive lawmakers have not signaled public resistance to Barr’s revived candidacy, boosting his chances of being confirmed.
The former Treasury official has already received backing from two of the top progressives on the Senate Banking Committee: Chair Sherrod Brown, D-Ohio, and Warren.
In a brief statement released last week, Warren highlighted Barr's work under the Obama administration that helped create the Consumer Financial Protection Bureau and said she intended to support him. The rest of her statement focused on the role's importance: "The Fed’s Vice Chair for Supervision is a powerfully important financial regulator, responsible for holding the biggest banks accountable and preventing the next financial crisis — and this position should have been filled months ago without political delay," Warren said.
Similarly, Brown said that "at a time when working families are dealing with rising prices while corporate profits continue to soar, this job is vital to ensuring the economy works for everyone. Michael Barr understands the importance of this role at this critical time in our economic recovery."
The Senate Banking Committee's Democratic centrists, meanwhile, have stayed mum on Barr's nomination. A spokesperson for Sen. Jon Tester, D-Mont., one of the Democrats who
A spokesperson for Manchin, who
Crypto past
With the Biden administration attempting to make its mark on the regulation of digital assets, Barr’s nomination is particularly poignant. Barr has served on the board of Ripple, and he’s currently still listed as an advisor to Nyca, a fintech-focused venture capital firm.
That’s alarming to groups who advocate against revolving-door hires between the private sector and government. The Fed’s vice chair for supervision will hold a lot of decision-making power over the specifics of crypto- and fintech-related policies for banks, and will be a key voice in creating the digital assets regulatory framework.
Still, the voices opposing Barr’s nomination aren’t as loud — although still concerned — on that front as they were when he was being considered to lead the OCC, and the Fed vice chair spot is arguably the bigger post. Jeff Hauser, executive director of the Revolving Door Project, said he’s still worried about Barr’s nomination, but acknowledged the political necessity of Barr’s nomination.
“One of the big interesting questions about the Barr nomination is, what do you think would have happened if Biden did not make a vice chair nomination?” he said. “That could leave the Fed completely passive and be a victory for deregulatory forces.”
Asked whether Brown shared concerns from fellow progressives about Barr's past work advising fintech companies, a spokesperson for Brown said that the Ohio Democrat "believes it is critical we have a full Federal Reserve Board and a vice chair for supervision who will prioritize strong financial regulation, and identify and stay ahead of risks to our economy," and that Brown looked forward to Barr's nomination hearing "in the coming weeks."
Policy outlook
While he is a known commodity in the financial regulatory space from his time with the Treasury Department and his work on Dodd-Frank, Barr’s specific stances on key regulatory questions of the day are not widely known.
Fed watchers and analysts expect Barr to guide the central bank through ongoing policy projects, including the incorporation of climate risk into the regulatory regime and the crafting of guidelines for bank involvement with digital currencies. But his track record gives little indication as to how aggressive he might be in hemming the bank industry in around those issues.
Aaron Klein, a senior fellow at the Brookings Institution who worked with Barr in the Treasury Department for two years, said his former colleague is unlikely to put his thumb on the scale when it comes time to weigh regulatory policies.
“He doesn’t walk into a room saying, 'I want more of this or less of that because I believe in this,' ” Klein said. “He walks into a room saying, 'What’s the issue? I want to fully understand what people on every side of the issue have to say. What are their best arguments, what are the counters to those arguments and where do I come in?'”
Still, others find Barr’s lack of communication on specific topics concerning. Progressive policy advocates worry he will not go far enough to reinstate the regulations peeled away under the supervision of his predecessor, Randal Quarles, a Trump appointee who stepped down at the end of last year.
“Just out of necessity, he's gonna have to look at things like climate, he's gonna have to look at things like crypto and" central bank digital currencies, one progressive policy advocate who requested anonymity to discuss Barr’s credentials. “But I don't know how much energy or attention he's going to devote to things like undoing the Quarles-era deregulation or beefing up the stress test.”
Conservatives point to Barr’s role in responding to the 2008 financial crisis as a sign that he may be willing to expand the role of the federal government in imprudent ways. Joel Griffith, a research fellow at the Heritage Foundation, said he will look for the Senate Banking Committee to pin down Barr’s views on climate regulation to make sure it is not too heavy-handed.
“It is imperative that we get a sense of whether or not he believes it's appropriate or if the Fed has the power to regulate the financial sector in a way that would shift capital away from our energy sector,” Griffith said. He pointed to statements by Raskin, advocating for the Fed to limit energy company access to emergency credit facilities during the early stages of the pandemic.
Griffith also worries that Barr will favor policies that restrict financial innovation, citing his role in designing the CFPB, which Griffith said has had a stifling effect on the sector.
When it comes to less politically divisive issues, such as adjusting capital requirements to adhere to the Basel III global regulatory framework or adjusting bank merger oversight, analysts on both sides expect Barr to draw from his past regulatory experience as well as his time advising fintechs to take a measured approach.
“Given his industry involvement, his knowledge of the way the sector works and his knowledge of how mergers benefit not only the merging shareholders but also benefit consumers, I am hopeful that he will be pragmatic, practical and operate within the law rather than be a partisan ideologue,” Griffith said. “That aspect of his track record is less problematic.”
