A Trump Holdover Is Blocking Joe Biden’s Antitrust Agenda

Jelena McWilliams, the Trump-appointed chair of the Federal Deposit Insurance Corporation and the lone Republican on the agency’s board, is blocking a review of bank merger regulations sought by the agency’s three Democratic board members as part of President Joe Biden’s antitrust agenda.

The escalating feud between McWilliams and the other three board members of the independent agency that regulates and insures financial institutions — Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, Office of the Comptroller of the Currency (OCC) acting Director Michael Hsu, and former FDIC Chair Martin Gruenberg — is over whether the chair or board of directors has the authority to order a review of and update regulations governing bank mergers.

Behind the question of who controls the agenda of the FDIC — the chair or the board — is the larger issue of the ongoing consolidation of the banking industry and the enforcement of Biden’s policy of stopping and reversing consolidation across the economy.

On July 9, the president ordered government agencies to review and update regulations and rules to combat corporate consolidation and anticompetitive behavior in the industries they regulate. To enforce this order, Biden appointed a new generation of regulators focused on reversing the regulatory failures that led to the 2008 financial crisis and the decadeslong trend of corporate consolidation.

Biden’s July 9 executive order encouraged the attorney general and financial regulators, including the FDIC, to open a review of regulations under the Bank Merger Act of 1960, including changes to the law following the financial crisis.

A wave of bank consolidation began in the 1990s after regulators and lawmakers loosened rules limiting mergers. The 2008 financial crisis turned that wave into a tsunami as the biggest banks got bigger thanks to government support for their acquisitions of the most troublesome financial institutions. Bank consolidation has not stopped since then, with PNC Bank buying BBVA and US Bank purchasing Union Bank in just the past three months.

Bank mergers are known to lead to increased prices, higher fees and lower savings interest for consumers. Mergers also lead to the closure of local bank offices, particularly in lower- and moderate-income communities, with the knock-on effect of less lending to small businesses and entrepreneurs and fewer employment opportunities. Bank consolidation also increases financial risk, as evidenced by the federal government intervention to save “too-big-to-fail” financial institutions in 2008.

“We are seeing firms that almost by definition can create systemic risks and yet regulators are rubber-stamping their mergers,” said Jeremy Kress, professor of business law at the University of Michigan’s Ross School of Business.

The three Democratic board members sought to put out a request for public comment for a review of bank merger regulations in October, but McWilliams and FDIC staff ignored them.

McWilliams, a former executive at Fifth Third Bank, and FDIC general counsel Nicholas Podsiadly, the former head of lobbying operations for Fifth Third Bank and, before that, Regions Financial Corporation, argued that the agency chair has sole control over the agency’s agenda and that the board cannot put forward any action without her support.

Gruenberg and Chopra, who has put Biden’s antitrust order at the forefront of his work, countered McWilliams by pointing to FDIC governing rules that put control of the agency in the hands of the board. Those rules also allow the board to take “notational” votes with or without the chair’s permission, according to a legal review prepared by CFPB staff.

The three board members held a notational vote that closed on Dec. 6 and approved the bank merger question for the agenda of the next board meeting. But McWilliams and her general counsel refused to acknowledge the vote, stating simply, “There was no valid vote by the Board.”

At Tuesday’s board meeting, Chopra attempted to amend the FDIC’s minutes by adding the notational vote to it, but McWilliams blocked it again.

“We have provided extensive legal support for why this vote was valid but have received no reply at all from the General Counsel to defend his extreme view,” Chopra said in a statement after the vote was denied. “We have essentially been instructed to accept an edict, but doing so would breach our fiduciary duties. This approach to governance is unsafe and unsound. It is also an attack on the rule of law.”

Chopra added that he and the other board members “will need to take further steps to exercise independence from management and to ensure sound governance of the Federal Deposit Insurance Corporation.” This could mean the board members filing a lawsuit against McWilliams.

It could also mean increasing pressure on Biden to remove McWilliams as FDIC chair, as some outside advocacy groups are now urging. Her removal, however, is not required for regulators to be able to review and approve new bank merger regulations over the next three years. She is currently slated to hold the position through June 2023, when Biden could name a replacement.

Also, the comptroller of the currency and the Federal Reserve vice chair for supervision can each begin the process without the FDIC chair. Hsu, however, has not yet requested a review of the bank merger rules while the vice chair for supervision seat is currently awaiting an appointment from Biden.

In the meantime, Kress suggests federal financial regulators place a moratorium on new bank mergers, as House Financial Services Chair Maxine Waters (D-Calif.) and pro-bank regulation groups have called for.

“One way or another, the Biden administration is going to strengthen bank merger oversight,” Kress said. “This is going to happen before 2024.”