Who will Trump pick to run his banking agenda at the Fed?

Bloomberg

President Donald Trump's financial policy team has begun to take shape with the confirmation of Scott Bessent as treasury secretary, but many of the positions that proved most troublesome to banks during the Biden administration remain open. 

And it's not just the Consumer Financial Protection Bureau, where continued inaction on the part of the Trump administration is causing angst among industry insiders. The Federal Reserve's vice chair for supervision post — which is held by Michael Barr until he steps down from the job next month — remains open, with no hints as to where the Trump administration will head. 

Though Barr said he will resign as the Fed's top bank cop, he also said he plans to remain as a member of the Federal Reserve Board of Governors. Barr's efforts to finalize the Basel III endgame proposal angered the bank lobby with demands that the largest banks hold higher capital reserves. The industry is eager to see someone confirmed to that position who will definitively put that rule — or at least the capital hikes envisioned in its first draft — to rest and get rolling on other deregulatory efforts at the central bank, several bank lobbyists told American Banker. 

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But Barr's continued presence on the board leaves the Trump administration in a tricky spot. The vice chair for supervision is selected from among the members of the Board of Governors, and for the first time in decades, the incoming president is inheriting zero vacancies on the board. 

Should the administration choose to move quickly, it has only a short list of candidates who are already on the Fed board that could get started as the central bank's next chief regulator. 

That makes Fed Gov. Michelle Bowman the easiest choice. Not only is she already on the board, she's served as a state banking supervisor and was a vocal critic of Biden-era regulatory efforts. She has a strong following among community bankers and has twice been confirmed with bipartisan support in the Senate. 

The administration could also wait until 2026, when the term of Fed Gov. Adriana Kugler expires, to choose from a wider pool of candidates, or it could encourage another Fed governor to step down before his or her term has expired. That would open up a range of options from Republicans' relatively deep bench of banking appointees from the first Trump administration. It could also be a more attractive option for the Trump administration than many in the industry would like.

Waiting until 2026, however, may not be tolerable for the banking industry, who would like to see the administration move quickly on deregulation. Aaron Klein, a senior fellow at the Brookings Institution, said the Fed's commitment to stall major rulemakings until Trump's team is installed could exacerbate that delay, but added that such a delay should be taken in appropriate context. 

"The Fed played into Trump's hands by announcing a regulatory moratorium until a new VC was confirmed, incentivizing Trump to take his time while the Fed sits on its own hands," Klein said. "But step back and recall Biden took months and years to nominate financial regulators. So the delay of a few weeks is not much when compared to the past." 

The case for Bowman

Bowman is one of two remaining Trump nominees at the Fed, along with Gov. Christopher Waller — himself an outspoken board member, although one more focused on monetary policy and macroeconomics. 

Trump nominated Bowman to fill an expiring term on the Board of Governors in 2018. The following year, he reappointed her to a full 14-year term. Both times she garnered at least 60 votes in the Senate. A former vice president at her family's bank — Farmers & Drovers Bank in Council Grove, Kansas — she holds the board seat reserved for someone with community banking or bank supervision experience. 

From this position, Bowman has often acted as a surrogate for banks of all sizes, especially with regards to proposed changes to capital rules and long-term debt requirements. She also championed her own policy prerogatives on a host of supervisory and regulatory topics.

"Policymakers have an important responsibility to make sure that the community banking model remains viable into the future," Bowman said in an October speech. "To function effectively, the banking system requires the presence of banks of all sizes — larger, regional, and community banks. This diversity of our financial institutions is the greatest strength of our banking system, and it can easily be imperiled by insufficiently targeted regulation, supervision, and guidance." 

Todd Baker, managing principal at Broadmoor Consulting and a senior fellow at Columbia University, said Bowman's views on bank regulation track closely with those of Randal Quarles, who served as vice chair for supervision during Trump's first term.

"That means skepticism towards one-size fits all capital requirements and regulatory mandates and a focus on cost-benefit analysis," Baker said.

Indeed, Bowman has often talked about the importance of tailoring regulation to ensure the most stringent requirements are reserved for the nation's largest banks. This was one of her biggest criticisms of the so-called Basel III endgame capital reforms put forth under Barr in July 2023.

Looking outside

One outside option floated by bank lobbyists to be the next Fed vice chair for supervision — either in 2026 or if a vacancy arises before then — is former Federal Deposit Insurance Corp. Chair and current partner at Cravath, Swaine & Moore Jelena McWilliams. 

A longtime Washington insider, McWilliams worked as a staff lawyer for the Fed and for the Senate Banking Committee before taking the reins at the FDIC in 2018. McWilliams has cultivated a reputation as a known quantity for the banking industry and is seen as easily confirmable for the Senate. 

During her time at the FDIC, McWilliams prioritized innovation, competition and expanding consumer access to credit and financial services. She also led the agency's response to the Covid pandemic — an exercise in which she worked hand-in-hand with counterparts at the Fed and Office of the Comptroller of the Currency — and established herself on the international stage through engagement with intergovernmental organizations. 

McWilliams also took a more affirmative approach to new technology than Bowman has, championing it as something that banks and regulators should lean into.

"Far too often we speak of technology as an operational risk. But technology is also an operational enabler – providing capacity, redundancy, and access," McWilliams said in an October 2020 speech at an event hosted by the European Union's Single Resolution Board. "We must foster innovation and embrace technological innovation by managing associated risks, not running from them. Our banks, businesses, and consumers will be the beneficiaries."

McWilliams resigned from the FDIC in 2022 after it became clear that the three Democrats on the board — then-Director Martin Gruenberg, acting Comptroller Michael Hsu and CFPB Director Chopra — would be able to control the agency's policy agenda. She joined Cravath later that year.

The appointment of either Bowman or someone like McWilliams would mark a significant departure from the policy course set by Barr. Both have advocated oversight approaches that are more collaborative with banks, both have also stressed the importance of fostering innovation. 

Compare and contrast

It is not clear how much daylight exists between Bowman and a more nontraditional pick like McWilliams on the matters most pertinent to the banking sector. 

Both have expressed support for addressing the large bank regulatory framework in a more "neutral" way, one that aligns the U.S. with its global peers without increasing the overall level of capital banks are required to maintain. 

Bringing crypto within the bank regulatory perimeter is also a shared goal, although possibly with different ends in mind. 

In her final speech as FDIC chair, McWilliams described bank-issued stablecoins as, potentially, a "faster, cheaper, and more efficient way to move money from place to place."

Meanwhile, in a 2023 speech on responsible innovation, Bowman cautioned against "solutions that could disrupt and disintermediate the banking system, potentially harming consumers and contributing to broader financial stability risks."

For now, the Fed's oversight of the crypto activity is minimal, but given Trump's interest in growing the digital asset sector, the eventual nominee's view on the topic could come into play, according to Derek Tang, CEO and co-founder of the Washington-based research firm Monetary Policy Analytics.

"That's going to be an area where Republicans are going to try to extract some sort of explicit support during the confirmation hearing," Tang said. "How each candidate would respond to that would be quite instructive and might also determine who is actually selected in the vetting process."

Another question is whether Bowman's experience on the Board of Governors would give her a leg up in implementing policy changes, or if the White House would rather see a relative outsider in the role. 

Rodney Ramcharan, a finance and economics professor at the University of Southern California and a former Fed economist, said that while either Bowman or McWilliams would be traditional choices, it is possible that Trump opts for a less obvious candidate to fill the role, noting that the president has had success installing appointees without typical credentials.

"People who are, for a lack of a better term, not traditionally qualified have been put into positions of power, so it is not inconceivable that something similar could be done with the vice chair for supervision position," Ramcharan said. "The Secretary of the Treasury was a pretty conventional pick and he could make the argument for having someone with more traditional experience in the vice chair role, but it's hard to say."