How the Trump-appointed émigré leading the agency became a villain for the Left.
How the Trump-appointed émigré leading the agency became a villain for the Left.
W hile the downfall of “Build Back Better” has been getting a lot of attention, it was not the only Washington policy drama with some surprise twists and turns last month. As progressives suffered at least temporary defeat when Senator Joe Manchin (D., W.V.) refused to endorse the massive spending bill, they ended 2021 by snagging a victory in a regulatory-turf battle. While the fight merely seemed to be concerned with technical issues of bank regulation, the consequences will be far-reaching, given that progressives are looking to ram through their desired mandates — particularly Green New Deal–style energy controls — with the instrument of financial regulation.
On New Year’s Eve Day, Jelena Obrenić McWilliams suddenly announced her intention to resign from her position as chairwoman of the Federal Deposit Insurance Commission (FDIC), even though her fixed term would not come to an end until mid 2023. In a letter to President Biden, she said that she intended to resign as of February 4, clearing the way for the president to name an acting chairman of his choosing until a nominee for the position is confirmed.
Nominated by President Trump to lead the FDIC — the agency created in the New Deal to provide deposit insurance for bank accounts, and also oversee bank regulation in conjunction with other federal agencies — McWilliams was confirmed in 2018 to a statutory five-year term by a bipartisan Senate vote of 69–24.
While McWilliams’s resignation came as a surprise, it did not arrive in a political vacuum. Since October, Democratic board members of the FDIC had been attempting to wrest control of the agency from her with unprecedented actions. When McWilliams resisted their attempted “hostile takeover of the FDIC internal processes, staff and board agenda,” as she described in a Wall Street Journal op-ed, progressive activists began fuming at her with an intensity they reserve for Republican politicians and perceived moderate Democrat turncoats like Senators Joe Manchin and Kyrsten Sinema (D., Ariz.). And even though the issue at hand concerned a seemingly technical regulatory procedure, McWilliams’s progressive critics accused her of putting the “entire Biden agenda” at risk.
McWilliams became a target of the Left, even though her biography would seem to make her an unlikely villain according to its own woke criteria. Her origin story is actually not too dissimilar from that of Saule Omarova, President Biden’s now-withdrawn nominee for comptroller of the currency, whose background as an immigrant woman in finance was touted heavily by her supporters in an effort to obscure her hard-left views. Omarova withdrew her nomination after a reported five Democratic senators found her proposals for a Federal Reserve takeover of private bank deposits and ideas for using bank regulation to bankrupt energy firms and other industries the government deems “socially suboptimal” to be just a bit too extreme.
Like the Kazakhstan native Omarova, McWilliams (nee Obrenić) also grew up in a Communist country (the former Yugoslavia), went to college in the U.S., and emigrated here during her college years. Though he did not vote to confirm McWilliams, Senate Banking Committee chairman Sherrod Brown (D., Ohio) pointed to her as an example of an immigration success story in making a comparison to Omarova. “Any American citizen who fled communist repression — whether FDIC chairwoman Jelena McWilliams or OCC nominee Saule Omarova — should be lauded for her courage and her conviction,” he proclaimed at a Senate hearing.
In his statement, Brown left out some important details about how the two women differ in their conceptions of the states they left behind. As recently as 2019, Omarova waxed nostalgic about aspects of the “old USSR.” “Say what you will about old USSR, there was no gender pay gap there,” she tweeted (inaccurately) that year. McWilliams, in contrast, seems less taken with what she had seen growing up, explaining how it motivates her to help ensure a vibrant yet secure U.S. banking system. “In the old country, those in power all too often changed the rules and circumvented protocols to enact their preferred policies,” McWilliams wrote in her WSJ op-ed. “When I was sworn in as chairman, I promised myself that I would lead the FDIC with deliberation and due care.”
But while Brown was publicly lauding McWiliams, Democratic FDIC board members were busy undermining her leadership with unprecedented actions that abandoned decades-old norms. It began when Rohit Chopra was sworn in as director of the Consumer Financial Protection Bureau in October and (as required by law) received a seat on the FDIC board. Chopra, who is embroiled in another controversy involving at least 20 “zombie votes” he put forth at the Federal Trade Commission just before he left his post as a commissioner there to assume the mantle of the CFPB, apparently decided he wanted to steer the FDIC as well.
Until President Biden took office, writes American Banker reporter Brendan Pedersen, it had been considered a norm that “the independent FDIC chair set the agenda.” That meant that even if McWilliams “was outnumbered by Democrats on the FDIC board, her office decided what was on the menu,” Pedersen continues. But he recalls that in January 2021, “I started to hear something funny from sources: some Democrats weren’t convinced that the FDIC chair’s control over the agency’s agenda was absolute, and they saw openings in the FDIC bylaws to assert power.”
According to McWilliams’s account, Chopra did not just try to bypass her as chairwoman; he went around the FDIC staff as well. On October 31, Chopra presented her with a draft “request for information on bank mergers.” This was unusual because at the FDIC and other government agencies, most regulatory documents — while directed by heads and members of agencies — are drafted by the regulatory agency’s staff. As McWilliams explains, “The FDIC has long-established processes for working on policy documents, which are initially drafted by career staff with subject-matter expertise and decades of experience.”
McWilliams writes that “in the spirit of collegiality,” she directed the FDIC staff to write its own request for information on merger reviews. But, according to her account, Chopra and other Democratic board members voted off-site to approve Chopra’s original draft that had entirely bypassed the FDIC staff.
According to Chopra’s account, the FDIC general counsel ruled the board’s vote invalid. Yet Chopra’s rule was still posted on the website of the agency he leads, the CFPB. As described by American Banker’s Pedersen, “Suddenly, a press release appeared on the CFPB’s website signed by FDIC board Democrats [Martin] Gruenberg and CFPB director Chopra saying, ‘hey, we issued a comment request! Cool huh?’”
Within hours, the FDIC at McWilliams’s direction responded with its own statement — titled “FDIC Statement on CFPB Statement — stating that “no such document has been approved by the FDIC,” as there was “no valid vote by the board.”
Aside from the unusual procedures Chopra’s regulatory document is remarkable for its attempt to impose Biden administration policy on the FDIC, which — like the Federal Reserve — was created as an independent agency free of the direct influence of the president. In a statement on his document, Chopra explicitly urged the FDIC to incorporate the Biden’s July executive order on competition — which called for abandoning the long-standing “consumer welfare” standard of antitrust — and “adopt a plan to revitalize bank merger oversight.” The same progressives who accused former President Trump of breaching “norms” when he criticized Fed chairman Jerome Powell on interest rates have been rallying around this open attempt to impose Biden’s antitrust policy on an independent agency regardless of the objections or questions from its chairwoman.
After McWilliams fought back against Chopra’s takeover efforts, progressives responded with rage and many urged Biden to take the unprecedented action of firing her if she didn’t accede to Chopra’s wishes. Some progressives conceded that such action may not hold up in court — as the statute is silent on presidential removal of the chairman and board members — but said that the urgency of Biden’s agenda made it worth testing. Georgetown University law professor and progressive activist Adam Levitin wrote in a Politico op-ed that “Biden must be prepared to fire McWilliams” and that “backing down would put his entire agenda at risk.”
Similarly, a New York Times op-ed by law professors Mehrsa Baradaran (whose name was bandied about as a potential nominee for comptroller of the currency before Omarova was nominated) and Jeremy Kress also made the claim that leaving McWilliams in power could destroy Biden’s “entire” agenda. “This battle,” they wrote, “is about much more than bank mergers: It is actually a fight over the White House’s entire economic agenda.”
But wait! Even if McWilliams were an ideological firebrand, which she is not, how could a bank regulator dismantle “the entire Biden agenda”? Doesn’t the Biden agenda include such matters as climate change, gun control, and countless other priorities?
Here’s the rub: Progressives now want bank regulation to enable their entire agenda through environmental, social, and governance (ESG) rules and other measures of “sustainability.” They share much of Omarova’s desire to “end banking as we know it” and pursue left-wing activism through regulation. And McWiliams, by virtue of being a prudent and deliberative regulator, is potentially standing in the way.
For instance, in a recent meeting of the Financial Stability Oversight Council (FSOC), a consortium of financial regulators created by the Dodd-Frank financial overhaul, McWilliams abstained from voting for a statement that committed financial regulators to combatting so-called climate risks to financial stability. In her statement of abstention, McWilliams acknowledged that “climate change presents significant challenges for our society,” but said that “FSOC has not had an adequate opportunity to conduct sufficient analysis, fully consider broader macro consequences, and thoroughly evaluate the impact of its recommendations.”
For that mild statement of disagreement with the progressive climate agenda, Center for American Progress director of financial regulation Todd Phillips lambasted McWilliams and called for FDIC board members to “take control of the agency.” That way, Phillips explained in an op-ed in The Hill, the FDIC can fulfill progressive desires by requiring that banks “publicly disclose any assets that contribute to climate change, mitigate climate risks to their portfolios, [and] provide loans to vulnerable communities facing the worst impacts of climate change.” He suggested that the FDIC also hike deposit-insurance premiums for banks “that face the greatest risks from the transition to a green economy,” likely meaning those that lend to oil and gas businesses.
Assuming McWilliams follows through with her planned resignation and does leave in February 2022, Phillips’s statement offers a preview of an FDIC with no semblance of independence and devoted entirely to advancing the progressive agenda. Conservative and free-market lawmakers and activists must monitor closely and fight FDIC initiatives that would further politicize the financial system. And the administration of the next right-leaning president should recognize the precedent the Biden administration and progressive activists have set and consider exercising similar presidential control over the FDIC and other financial-regulatory agencies.