WASHINGTON – The Supreme Court ruling last month allowing President Joe Biden to fire Trump-appointed head of the Federal Housing Finance Agency doesn’t just reset the political trajectory of Fannie Mae and regulator Freddie Mac. It also meant another agency without a Senate confirmed leader.
Three financial services regulators are now headed by an â€œinterimâ€ person. After Biden ousted FHFA director Mark Calabria, agency manager Sandra Thompson was quickly appointed interim director. She joined Dave Uejio, Acting Director of the Consumer Financial Protection Bureau and Acting Currency Controller Michael Hsu.
Without permanent leaders in place, long-term political goals such as reforming the community reinvestment law and planning a future for Fannie and Freddie could be slowed down, some observers have said. But analysts say the interim leaders are likely to draw inspiration from White House and Treasury Department officials, giving the administration greater power to set policy.
â€œThe most powerful financial regulator is [Treasury Secretary] Janet Yellen, â€said Jaret Seiberg, managing director of the Cowen Washington Research Group. “I would turn to her for advice on what the regulatory agencies are going to do.”
Yellen worked with Hsu when he was chairman of the Federal Reserve. The Treasury is also a key player in determining the parameters surrounding government ownership and the eventual release of Fannie and Freddie.
â€œThere is a former colleague of hers who runs the [Office of the Comptroller of the Currency]. She is the key counterparty required for any change in the contract between the government and Fannie and Freddie, â€Seiberg said. â€œI think the Treasury has a lot of influence on how the CFPB sees politics. “
The Biden administration is waiting for Congress to vote to confirm Rohit Chopra, a member of the Federal Trade Commission, as director of the CFPB. The administration has also struggled to find consensus around a candidate for the post of Comptroller of the Currency.
Some analysts say vacancies in financial regulatory agencies hamper the Biden administration’s ability to advance its political agenda, as interim directors have traditionally not used their leadership positions to implement changes. major policies.
But sources close to the financial services industry say the role of interim leaders in regulators has changed.
â€œTraditionally, to act [directors] were seen as gatekeepers, â€said Meg Tahyar, co-head of financial institutions and fintech at Davis Polk & Wardwell. â€œBut today it’s a different ball game. It’s just a whole different thing today. In the recent past we have seen â€œactivistsâ€ act and we have seen â€œguardsâ€ act. “
Jeff Naimon, a partner at Buckley, said officials appointed as interim heads of financial regulators have the ability to advance substantive policy priorities.
â€œThe people who are already in place are quite capable of moving the administration’s agenda forward because they are not just gatekeepers,â€ Naimon said. “They are actors.”
Uejio and Hsu both aggressively walked out the door to signal a change in leadership for their agencies from the previous leadership under Trump. Yet the acting chiefs appointed under the Trump administration have also attempted to craft important policy.
Former interim controller 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 disadvantaged. But the agency halted publication of the rule after Brooks left in January, and Hsu has signaled he will not reactivate it.
Some see in other decisions by Hsu, who was appointed interim controller in May, a sign that he intends to be more than a keeper. One of his first moves was to appoint a new chief legal adviser for the OCC, former Fed official Benjamin McDonough. More recently, he reorganized the management structure of the OCC so that the supervisory units report directly to the Controller.
â€œThere was a bit of a surprise that [Michael Hsu] quickly decided to install a new general counsel with the OCC, â€said a financial services lobbyist who requested anonymity. â€œFor Hsu to make this move very quickly after being installed, acting suggests one of two things. Either you are going to act for a while and expect to act for a while, or it was. maybe some sort of decision endorsed by others in administration, that in that kind of gatekeeper role, it was a decision they wanted to Fabricate. “
Meanwhile, Uejio, who has served as CFPB’s interim director since Kathy Kraninger resigned in January, has pledged to swiftly penalize companies that have failed to provide relief to military veterans during the coronavirus pandemic and has emphasized racial equity when he took the helm.
â€œUejio has been extraordinarily active and energetic in changing the direction of the agency,â€ said Naimon.
At the FHFA, Thompson, a former Federal Deposit Insurance Corp. official, is already being considered a potential candidate for a full five-year term at the housing finance agency.
“Everyone thinks she’s super qualified,” said the financial services lobbyist. â€œShe has this great experience, both at the FDIC and the FHFA. I think there is a growing feeling that she could very well be playing the role of actress for a very long time. They can never name someone and just let her do the job as an actor. Thinking being, why go through the hassle of another confirmation in a 50-50 Senate where each confirmation takes up precious floor time? “
Tahyar said the many openings in financial services regulators could be the result of the Biden administration’s focus on policy priorities outside of the financial services space.
â€œIt’s difficult to get consensus on who to appoint and there are other priorities,â€ Tahyar said. â€œThe things happening in the financial sector, in terms of regulatory reform right now, are important but not urgent. We are not dealing with a house on fire.
The financial services lobbyist added that Democrats in Congress may not want to waste time confirming the heads of permanent agencies when other legislative priorities are more urgent.
“Knowing how difficult and time-consuming appointments are and the fact that they potentially want to get this infrastructure deal on the ground in July, why not save time and bother to nominate people and leave do the actors do the work? “said the financial services lobbyist.
In addition to openings at FHFA, OCC, and CFPB, there is a vacant seat on the Federal Reserve Board of Governors and a vacant position of Vice President at the FDIC. Some observers say the inability of the Biden administration to fill these positions is hampering its ability to pass a new regulatory agenda.
â€œAn eighth of Biden’s presidency is over and we don’t even have any candidates for the Comptroller of the Currency or the vacant Federal Reserve position,â€ said Aaron Klein, senior researcher at the Brookings Institution. â€œTime is a precious commodity and much of it has been wasted without candidates. “
But Seiberg said acting directors working in agencies allow the administration to make policy.
â€œFor this administration, it’s a pretty good situation,â€ Seiberg said. â€œYou have a very strong Secretary of the Treasury who seems to be leading the shots. And it’s hard to believe that the policies put in place by these interim directors are going to be reversed by the permanent candidates that the Biden administration ultimately proposes.