Randal Quarles, the former vice chair for supervision for the Federal Reserve, said a recent Supreme Court ruling could make American bank regulators more similar to their European counterparts.
In the European Union, regulatory bodies send proposed rule changes to the legislature to be approved, denied or amended. Quarles said the case,
"A possible implication of the West Virginia case would seem to be that — and you can hardly say the administrative state in Europe has withered away — but that we should follow a practice that's much more like that," he said. "Right now, we have the Congressional Review Act, which is sort of a reverse of that, Congress can take up an administrative action and reject it."
Quarles's remarks were delivered during a Tuesday afternoon panel on bank regulation at
At the heart of the West Virginia v. EPA case is to what degree agencies can establish new regulations not spelled out in authorizing legislation. Prior to this suit, which challenged a cap on carbon emissions set by the EPA, the long-running precedent was to give broad regulators a wide berth in interpreting their governing statutes. The court's ruling erodes that deference at least somewhat, but how much remains to be determined.
"In the six-three decision, the Supreme Court struck down the EPA regulations by invoking the so called Major Questions Doctrine, specifically the Supreme Court ruled that in extraordinary cases where the political and economic significance of agency action is especially pronounced, that a court needs to look to and find clear congressional authorization in order to uphold that rule," Jeremy Newell, a senior fellow with BPI and a former Fed lawyer who also participated in the panel, said. "In this particular case, it concluded that the EPA for that regulation, there wasn't a clear congressional authorization."
Newell said the
"That's going to have to get worked out in lower courts and the courts applying the Major Questions Doctrine, and I suspect there'll probably be a variety of courts that take a variety of positions in terms of exactly how narrow or expansive the Major Questions Doctrine is," he said.
Quarles brushed away concerns that the ruling would "gut" the administrative state. Instead, he said, it could curtail the recent push to make bank regulation less prudential and more partisan.
A Supreme Court decision to limit the powers of the Environmental Protection Agency fell short of overturning a broader cornerstone of administrative law. But the move extended a streak of hostility toward regulatory authority that analysts expect will continue for the foreseeable future.
"If you have someone there who's not going to accept that limitation, is not going to say 'My job, sitting in an administrative agency, is not to imagine the world as I think would be good and move the world in that direction, but to imagine what can be achieved within the limits of the legislative framework,' then you need some sort of either judicial or legislative change to provide a formal protection against that," he said. "We don't really have that currently. It's possible the West Virginia case could be that constraint."
Tapped by then-President Donald Trump to be the Fed's chief regulator, Quarles has been a proponent of measured action and a limited scope for regulatory agencies. He said the European model gives a "democratic imprimatur" to administrative actions by forcing changes to be broadly acceptable to the voting public and their representatives.
"It's not a bad system and it is the system that pertains in most of the rest of the world," he said.
Reena Sahni, associate general counsel for the Fed and another panelist, said such a shift in regulatory policy making would be significant, but she noted that the Fed already goes to great lengths to build consensus around policy changes.
"We all care about the credibility of these institutions and credibility can be enhanced if the actions taken are accepted," Sahni said. "Part of the process we deploy … is focused on providing transparency on our thoughts and getting a wide a range of reactions to them. … We feel this is the right way to bring people together. The Fed does have a different approach on this issue, in terms of being culturally consensus driven, as well as being required to come together."
