Regulatory Leadership in Limbo as Election Looms

WASHINGTON – Barack Obama and Mitt Romney are not the only public figures with a lot riding on Tuesday’s vote.

Leaders of several banking regulators, including the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp. and Federal Housing Finance Agency, are likely to see their jobs greatly affected by the outcome of the presidential election.
 
CFPB Director Richard Cordray, who was installed by Obama in January without Senate confirmation much to the GOP’s outrage, is expected to hold office at least until his recess appointment expires at the end of 2013, no matter the election victor.
 
But the outcome will impact the CFPB’s leadership longer-term, as well as what challenges Cordray faces on the job over the next year.

Cordray is likely to remain at the agency until next year when his term expires, giving him a chance to defend against new efforts by a Romney administration to challenge the bureau.
 

Even in 2014, however, Romney would likely face an uphill battle selecting a new director. Senate Democrats are likely to oppose any Republican appointee to the CFPB in part because Republicans refused to vote on Cordray’s nomination (The GOP was seeking changes to the CFPB’s leadership structure.)
 
The equation is different if Obama wins. Although some observers predict Cordray will return to Ohio and possibly run for higher office, four more years of an Obama White House at least presents the option of trying to reappoint him.

If Cordray leaves, the administration could either leave the bureau in the hands of Cordray deputy Raj Date – the statutory requirement when there is an opening in the director’s office – or try to select someone else. In any case, the Democratic White House would be viewed more as an ally of the CFPB than as a new hall monitor trying to take away its privileges.

The impact of the election on the FDIC’s leadership, meanwhile, will be more straightforward. Congressional squabbling over confirmations has put the agency somewhat in limbo ever since former Chairman Sheila Bair stepped down in July 2011.

In April, the battle over appointments – stoked in part by Republican anger over Cordray’s recess appointment – came somewhat to a head. The Obama administration nominated Martin Gruenberg, now the agency’s acting chairman, as the FDIC’s new leader. It also assented to Republican requests to nominate former central banker Thomas Hoenig to be the FDIC’s vice chairman. (Under the peculiar rules of FDIC board appointments, the opposition party typically selects the agency’s No. 2.)

But with enough members to impose a filibuster, the Senate’s GOP leadership resisted allowing a full vote. With the presidential race so tight, Republicans sought to give a hypothetical Romney presidency the opportunity to nominate its own FDIC chairman and vice chairman.

The Senate confirmed Gruenberg and Hoenig to six-year terms on the board, but did not finalize their leadership positions.

If Obama wins on Tuesday, Gruenberg and Hoenig are expected to receive quick confirmations as chairman and vice chairman, respectively, possibly during the lame-duck session before yearend.
 
If Romney wins, a number of scenarios could result. While he could nominate a new chairman, Gruenberg and Hoenig will remain on the agency’s board for the duration of their terms as directors. A President Romney could theoretically switch their nominations, making Hoenig chairman and Gruenberg vice chairman as he was under Bair.

Romney could also nominate Jeremiah Norton, the other Republican FDIC board member, to become chairman. Norton is somewhat of a wild card because his term on the board expires next year, which would also leave Romney with the opportunity to nominate someone new to assume Norton’s seat and become agency chairman.

A third agency facing potential election-night implications is the FHFA.
Acting Director Ed DeMarco, who has been leading the agency since August 2009, has been favored by Republicans, who view him as an ally.

If Obama wins, speculation has grown that he will seek to replace DeMarco in December.

“We would expect to see President Obama use the recess appointment to replace DeMarco in December were he reelected,” Bank of America analyst Ralph Axel reportedly said in a note to clients last week.

If Romney wins, he will undoubtedly seek to have his own nominee, but may not be in a rush to do so. With so many other issues pending, including the fiscal cliff, and Republicans’ positive attitudes toward DeMarco, it’s unlikely the FHFA will be a high priority target in the near term.