Banking regulators expected to advance Biden agenda despite ‘acting’ tag

WASHINGTON — The Supreme Court’s decision last month allowing President Joe Biden to fire the Trump-appointed head of the Federal Housing Finance Agency not only resets the policy trajectory of Fannie Mae and Freddie Mac’s regulator. It also meant yet another agency without a Senate-confirmed leader.

Three financial services regulators are now led by an “acting” appointee. After Biden ousted FHFA Director Mark Calabria, senior agency official Sandra Thompson was quickly named as the interim director. She joined Dave Uejio, acting director of the Consumer Financial Protection Bureau and acting Comptroller of the Currency Michael Hsu.

Without permanent heads in place, long-term policy goals such as reforming the Community Reinvestment Act and charting a future for Fannie and Freddie could be slowed, some observers said. But analysts say that the acting leaders are likely taking their cues from officials within the White House and the Treasury Department, giving the administration greater power to set policy.

“The most powerful financial regulator is [Treasury Secretary] Janet Yellen,” said Jaret Seiberg, managing director at Cowen Washington Research Group. “I would look to her for guidance as to what the regulatory agencies are going to do.”

Yellen worked with Hsu when was Federal Reserve chair. Treasury is also a key player in determining the parameters around the government’s ownership and eventual release of Fannie and Freddie.

The firing of former FHFA Director Mark Calabria meant the housing regulator became the third agency along with the OCC and CFPB lacking a Senate-confirmed leader. Analysts say acting heads are likely taking their cues from the White House and Treasury Department.

Bloomberg News

“There is a former colleague of hers running the [Office of the Comptroller of the Currency]. She is the key counterparty required for any changes to the contract between the government and Fannie and Freddie,” Seiberg said. “I think Treasury has a lot of influence over how the CFPB views policy.”

The Biden administration is waiting for Congress to vote to confirm Federal Trade Commission member Rohit Chopra to serve as CFPB director. The administration has also struggled to find a consensus around a candidate to serve as comptroller of the currency.

Some analysts say the vacancies at the financial regulatory agencies stymy the Biden administration’s ability to advance its policy agenda because acting directors traditionally haven’t used their leadership position to implement major policy changes.

But sources close to the financial services industry say that the role of acting leaders at regulatory agencies has changed.

“Traditionally, acting [directors] were seen as caretakers,” said Meg Tahyar, co-head of financial institutions and fintech at Davis Polk & Wardwell. “But today, it’s a different ballgame. It’s just all different today. We’ve seen in the recent past ‘activist’ acting, and we’ve seen ‘caretaker’ acting.”

Jeff Naimon, a partner at Buckley, said that the officials appointed as acting leaders at the financial regulators have the ability to advance substantial policy priorities.

“The people who are already in place are fully capable of pushing the administration’s agenda forward, because they’re not just caretakers,” Naimon said. “They are actors.”

Both Uejio and Hsu moved aggressively out of the gate to signal a change of direction for their agencies compared to prior leadership under Trump. Yet acting heads appointed during the Trump administration also attempted to make significant policy.

Former acting Comptroller Brian Brooks, who served in the final months of the Trump administration, crafted a controversial rule that would have prohibited banks from discriminating against legal industries that are politically disfavored. But the agency halted the rule’s publication following Brooks’ departure in January, and Hsu has signaled he won’t revive it.

Some see other decisions by Hsu, who was named acting comptroller in May, as a sign that he intends to be more than a caretaker. One of his first moves was to appoint a new chief counsel for the OCC, former Fed official Benjamin McDonough. More recently, he reorganized the OCC’s leadership structure so that supervision units report directly to the comptroller.

“There was a little bit of surprise that [Michael Hsu] quickly moved to install a new general counsel to the OCC,” said a financial services lobbyist who spoke on the condition of anonymity. “For Hsu to kind of make that move very quickly after being installed as acting suggests one of two things. Either you’re going to be acting for a while and expect to be acting for a while, or maybe this was an approved sort of decision with others in the administration, that in this sort of caretaker role, this was a move they wanted to make.”

Meanwhile, Uejio, who has been serving as acting CFPB director since Kathy Kraninger resigned in January, vowed to quickly penalize firms that didn’t provide relief to military veterans during the coronavirus pandemic and signaled a focus on racial equity when he took the helm.

“Uejio has been extraordinarily active and energetic in changing the agency’s direction,” said Naimon.

At the FHFA, Thompson, a former official at the Federal Deposit Insurance Corp., is already seen as a potential candidate to serve a full five-year term at the housing finance agency.

“Everybody thinks she’s super qualified,” the financial services lobbyist said. “She’s got this great background, both at the FDIC and at FHFA. I think there’s a growing sense that she may very well be the acting for an awful long time. They may never nominate someone and just let her do the job as acting. The thought being, why go through the hassle of another confirmation in a 50-50 Senate where every confirmation takes up valuable floor time?”

Tahyar said that the numerous openings at the financial services regulators could be a result of the Biden administration’s focus on policy priorities outside of the financial services space.

“It’s hard to get a consensus on who to nominate and there are other priorities,” said Tahyar. “The things that are happening in the financial sector, in terms of regulatory reform right now, are important but not urgent. We’re not dealing with a house on fire situation.”

The financial services lobbyist added that Democrats in Congress may not want to waste time confirming permanent agency leaders when other legislative priorities are more pressing.

“Knowing how challenging nominations are and how time-consuming they are and the fact that they want to potentially do this infrastructure deal on the floor in July, why not save some time and not bother nominating people and just let the actings do the job?” the financial services lobbyist said.

Aside from the openings at FHFA, the OCC and the CFPB, there is an open seat on the Federal Reserve Board of Governors and a vacant vice chairman position at the FDIC. Some observers say that the Biden administration’s inability to fill these positions hinders its ability to enact a new regulatory agenda.

“One-eighth of the Biden presidency is over and we don’t even have nominees for the comptroller of the currency or the vacancy on the Federal Reserve Board,” said Aaron Klein, a senior fellow at the Brookings Institution. “Time is a precious commodity and much of it has been wasted without nominees.”

But Seiberg said that the acting directors working at the agencies enable administration to craft policy.

“For this administration, this is a pretty good situation,” said Seiberg. “You have a very strong Treasury secretary, who seems to be calling the shots. And it’s hard to believe that policies that these acting directors put in place are going to be reversed by permanent nominees that the Biden administration eventually puts forward.”

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