The outcome of recent national elections will result in a change of Administration and control of both houses of Congress by the Administration’s political party. As a result, there will be a change in national policy and in the leadership of the agencies that will oversee and enforce it. This post will review currently announced and potential changes to the leadership of Federal agencies that exercise supervisory and regulatory power regarding financial services and housing and the policy impact such changes may have on the Biden-Harris Administration’s racial equity and climate action goals. A “scorecard” of such agencies’ leadership, present and prospective, is appended to this post for the reader’s convenience.
Changes in Agency Leadership
Some changes in agency leadership are possible at the outset of the new Administration and some may occur later, to wit:
- The currently serving Comptroller of the Currency is acting and may, in any event, be dismissed by the President with statutorily required notice to Congress.
- Pursuant to the Supreme Court’s recent decision in Seila Law v CFPB, the Director of the Consumer Financial Protection Bureau (CFPB) may be dismissed by the President at will, notwithstanding a now invalidated provision of the Dodd-Frank Act providing for a five-year term terminable only for cause. The Director of the CFPB will certainly be replaced.
- The Federal Deposit Insurance Corporation (FDIC) board will change as a result of the two leadership changes noted above. The FDIC enabling statute provides for a board comprised of a Chair, Vice Chair and Director, each appointed and confirmed for a term of six years; and the Comptroller and CFPB Director by virtue of their offices. The enabling statute further provides that the board may have no more than three members of the same political party. The Comptroller, CFPB Director and currently serving FDIC Director will be members of the same party (Democratic). The current Chair is a Republican member whose term as Chair runs through June of 2023 and whose term as a Director runs through 2024. The office of Vice Chair is vacant and may not be filled by a Democrat.
- The Vice Chair for Supervision of the Federal Reserve Board of Governors remains in that office through October 2021, and as a Governor through January 2032. In addition, one seat on the Board is vacant, so the Administration has the option either of renominating the currently servicing Vice Chair for Supervision or replacing him in that capacity.
- The current Chairman of the Securities and Exchange Commission (SEC) is acting and there is a vacancy on the Commission. It has been reported, although not yet formally announced, that the incoming Administration will nominate a former Chair of the Commodities Futures Trading Commission (CFTC) to be Chair of the SEC.
- The Chair of the CFTC is appointed by the President with the consent of the Senate and there is a holdover Commissioner at present, so the incoming Administration will likely appoint its own Commission Chair.
- While the current Director of the Federal Housing Finance Agency was appointed and confirmed for a term ending in 2024, the Supreme Court has just heard a case in which it has been argued that the provision under which he holds office is constitutionally invalid and that he is an executive officer and may be dismissed at the discretion of the President. Given the decision in Seila Law v CFPB, it is likely that the Director will be held to hold office “at will,” giving the incoming Administration the ability to dismiss and replace him unless he resigns sooner.
- As a result of the changes just mentioned, there will be at least five new members of the Financial Stability Oversight Board in the near future: Treasury Secretary (Chair), Comptroller, CFPB Director, CFTC Chair, and SEC Chair. And, eventually, there will be a sixth: the FHFA Director.
The changes just noted are in addition to the appointment of new leadership at the executive agencies of the Federal Government, the most important being, for purposes of this discussion, the Departments of Treasury, Justice, and Housing and Urban Development.
Policy Implications of Leadership Changes
The Biden-Harris Transition Team has highlighted four priorities to be addressed when in office: the Covid-19 pandemic; economic recovery; racial equity; and climate change. These priorities are multi-faceted, interrelated, and challenging. Making progress on them will require a combination of legislative and administrative action. The discussion that follows focuses on how two of the priorities – racial equity and climate – can be addressed by agency action.
While the topic of racial equity is, sad to say, a broad one, any meaningful attempt to deal with it involves redressing the wealth gap between African Americans and other Americans. And a key to addressing the wealth gap is the disparity in housing wealth that has resulted from Jim Crow, past federal housing policy, and discriminatory sales and lending practices and zoning laws. Effectively addressing this aspect of the racial equity goal will require that the incoming Administration enforce Federal fair housing laws and increase the availability of affordable rental housing and low-and moderate-income homeownership.
The announced appointments to the Justice Department and HUD make clear that the incoming Administration will pursue robust policies regarding discrimination, through the reinstitution of the disparate impact doctrine and enhanced enforcement. It will also probably reverse the OCC’s recent attempts to gut the Community Reinvestment Act (CRA) and support some version of the Federal Reserve’s proposed CRA rule to promote credit availability. New leadership at HUD will no doubt use the tools available to it to increase available affordable rental housing and low- and moderate-income homeownership, assuming adequate funding. The role that Fannie Mae and Freddie Mac will play in addressing this priority will depend on the outcome of Collins v Mnuchin and possible Congressional action to end FHFA’s conservatorship of them.
The incoming Administration has made climate change a priority for obvious reasons: the growing consensus among experts that reduction of carbon emissions is needed now to avoid a catastrophe in the future. The outgoing Administration ostentatiously denied this reality, reversed prior administrative actions to address climate change, and took executive and administrative actions that made matters worse.
However, as Sarah Bloom Raskin has recently written, there is now reason for hope:
… with the Federal Reserve having recently joined other central banks to support the Paris climate goals and an engaged new administration on the horizon, 2021 could be a chance for the US to leapfrog into global leadership by embracing the potential of America’s complex financial regulatory system.1
Professor Raskin goes on to point out how financial regulatory and supervisory agencies can and should adapt to address the risks presented by climate change. The FinReg Blog has published a complete volume of articles about whether and how such action should be taken. When the Biden-Harris Administration is in office US supervisory and regulatory agencies will be led by people who will take such actions and will be acting in concert with the stated policy of the Executive when they do.
The Biden-Harris Administration faces an array of political, social, and economic problems that is daunting and complex. The issues discussed in this post only scratch the surface of two of the priorities the Biden-Harris Transition Team has set to address such problems. That said, the post shows how changes to the leadership of administrative agencies can and will make a difference. Personnel is, in fact, policy. The new leadership will have a lot on their plates; let us hope they succeed.
Agency Leadership Scorecard (Can’t tell the players without one)
Joseph A. Smith, Jr. is a senior fellow at the Global Financial Markets Center at Duke Law and the former North Carolina Commissioner of Banks.