WASHINGTON — The culmination of a yearslong push from conservative lawyers to undercut the broadest powers of federal agencies could unsettle decades of American banking law and fundamentally reshape the industry’s relationship to its regulators, scholars say.
Much of American administrative law has rested upon a legal principle known as “
Legal scholars say the end of Chevron deference would mark a generational shift in how federal agencies maintain, enforce and expand their authority. And while some analysts say the banking sector could be partly insulated from the impact of such a change, others say that the doctrine’s demise could usher in a new age of litigation between the industry and its regulators, ultimately limiting the government’s ability to respond to financial innovation or certain types of systemic risks.
“Now that the Supreme Court is mostly conservative, what you often see as they’re reviewing agency regulations — rather than citing [Chevron] as a fundamental building block of judicial review over administrative decision making — they won’t even cite the case,” said David Zaring, a professor of legal studies and business ethics at the Wharton School of the University of Pennsylvania.
“If Chevron deference goes away, you could see a lot of agency initiatives being scotched by the courts, because they're not supported by a clear congressional authorization to do those things,” Zaring said.
21st-century problems, 20th- century statutes
Chevron’s influence over nearly four decades is undisputed — it is perhaps the
The 1984
The effect of the Chevron case is that it is very difficult for plaintiffs to overturn a reasonable and duly promulgated regulation. By granting federal regulators such a wide and malleable standard for establishing their own authority, some say that the doctrine has made it easier for Congress to remain dysfunctional and pass few landmark laws, despite years of a rapidly evolving technological, business and political landscape.
As a result, federal agencies have frequently been saddled with trying to respond to 21st-century problems with 20th-century statutes — if not older. The Office of the Comptroller of the Currency, for instance, has spent years parsing the National Bank Act, enacted during the 1860s, to find
Under the current makeup of the Supreme Court, there are two related-but-distinct legal principles vying to replace Chevron deference in the realm of judicial-administrative review. The first is known as the “major questions” doctrine, which holds that courts should not defer to agency interpretation of the law when the decision could have major economic or political significance.
The Trump administration frequently pointed to the major questions doctrine to support its deregulatory agenda, and two of former President Donald Trump’s nominees to the Supreme Court — Justices Neil Gorsuch and Brett Kavanaugh — have expressed support for the principle. (The stance of Trump’s third nominee, Justice Amy Coney Barrett, on the major questions doctrine
The second principle goes further. Termed the “nondelegation” doctrine, the principle would hold that no agency can adopt authorities that have not explicitly been granted by Congress. Justice Gorsuch has been one of nondelegation doctrine’s top supporters, while critics say its actual implementation could
Still, in some ways, analysts say that the impact of Chevron’s demise will be less acute among the banking agencies. Unlike other regulators, such as the Environmental Protection Agency, the prudential regulators have fairly detailed and explicit statutory authority vested in them, including the duty to ensure “safety and soundness” in the banking system. As a result, it has remained relatively unusual for the prudential bank regulators to be dragged into courtroom battles relative to other agencies.
“A lot of banking laws are written in a way that grants bank regulators significant statutory powers,” said Saule Omarova, a professor of law at Cornell University and former Biden administration nominee to lead the OCC whose nomination was
“They even have statutory powers in certain circumstances to order divestiture of entire business lines, effectively breaking up banking institutions,” Omarova said. “Those are the kinds of statutory powers that the EPA doesn't have, as far as I can tell, or that U.S. regulators in general have.”
Zaring agreed, saying that the laws that govern American bank regulation feature “sufficiently clear delegation by Congress about what the financial regulators are supposed to do, even if banks don't like it. I think that stuff would be likely to survive judicial review.”
See you in court
Some analysts say there remains significant risk that litigation between bank and regulator could become far more common, injecting a significant amount of uncertainty into future rulemaking processes.
“Whatever actions the bank regulators take, it might be easier for the industry to challenge them in court,” Omarova said. “Once that signal goes out, particularly in an area where so much depends on tacit understandings of the limits of where banks can push before the regulators get really upset … the boundaries might actually start to move.”
But others say that as Congress has taken on a less active role in national policymaking and regulators have stepped in to fill the gap, the potential for abuse of that power has grown, and
“The whole idea of deferring to regulators means deferring to the executive and weakening the separation of powers,” said Scott Pearson, a partner at Manatt. “That's why Chevron deference is going to be really important with the current group of regulators, because they are trying to push the envelope in every way they can.”
A decision to weaken or eliminate the Chevron doctrine could appear in many different types of cases that reach the Supreme Court. One case being decided in the current term — American Hospital Association v. Becerra —
A Supreme Court decision that formally throws out the Chevron doctrine would likely open the door to more ubiquitous litigation between the banking industry and its regulators — litigation that many analysts and bank advocates say could be warranted as regulators at the Federal Reserve, Federal Deposit Insurance Corp. and OCC seek novel ways to incorporate the risks of climate change into the financial sector or grapple with the implications of cryptocurrency.
“Without Chevron deference, it will be much easier for financial institutions to challenge regulatory interpretations of statutes that expand their scope or otherwise change what Congress intended,” Pearson said.
‘What policies actually get made?’
Some scholars have been uncomfortable for some time with the broad responsibilities placed on federal agencies trying to create legal frameworks that address problems of the day, rather than democratically elected lawmakers in Congress.
“I just worry that more and more decisions are being pushed off on unaccountable and unelected agencies, unaccountable and unelected judges, and unaccountable, unelected Federal Reserve Board members,” said Arthur Wilmarth, a professor emeritus of law at George Washington University.
Many Republicans on Capitol Hill have echoed those concerns about accountability in response to
“The problem is that really often, the agency is either dominated by whatever administration is in power, by whatever industry they're regulating, or both,” Wilmarth added. “And so when Congress, in a sense, has abdicated either to the executive branch or to private industry, what policies actually get made?”
But others contend that the implementation of legal principles that broadly hamper the abilities of federal regulators to create policy could reverberate far beyond the highest-profile regulatory fights.
“It's not simply about democratic governance. It's actually more about housekeeping in the banking sector, on a very technical level,” said Omarova. “That's what worries me — that supervisory guidance could be chilled, because it will be challenged in court more frequently as a rule and then struck down because there is no Chevron deference.”
Some academics also have significant concerns about the ability of regulators to respond to novel threats to the financial system, such as those posed by stablecoins. There is currently no federal law that addresses digital assets in the United States, but the sector
“There are certain points in time, when innovation and shifts in the technology of finance really push the limits of regulatory and policy judgment and oversight to a point where there may be some kind of qualitative change, or there is a need for some kind of qualitative change,” Omarova said. “We are, right now, exactly at that point, which means that bank regulators will be facing certain tough decisions and may want to make moves that are novel or things that haven't been done before, because they need to respond to how the markets are changing.”
But others say it's inappropriate for an agency’s so-called regulatory perimeter to be expanded without Congress’s approval.
“Regulators, constitutionally, are not permitted to do that,” said Pearson. “We're not supposed to have a government where just because someone has been appointed to a regulatory position, they can transform their view of the public interest into law, when there are no checks on them other than trying to get the president to fire the person.”
