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Biden finalizes his bank regulatory nominees, setting the stage for a robust enforcement agenda in 2022 and beyond

25 January 2022 Adam Goldberg

Biden nominates assertive regulator for key Federal Reserve post

US President Joe Biden nominated Sarah Bloom Raskin to replace Richard Quarles as the Federal Reserve head of bank supervision. This position represents the chief financial regulatory official at the Federal Reserve and is considered one of the most powerful banking-regulator posts in the United States. That is largely due to the Federal Reserve's large role in regulating some of the largest banks following passage of the Dodd-Frank Act in 2010.

Mrs. Raskin's predecessor, Quarles, presided over a period of deregulation at the Federal Reserve. Many of the robust powers built up during the Obama Administration were rolled back, with specific regulatory relief being granted numerous times during the Trump Administration. Some of these included actions in reducing capital requirements for US banks with less than $700 billion in assets and roll-backs of portions of the Volcker Rule, which prohibited large banks using their deposits to engage in proprietary trading.

In addition to Raskin, President Biden nominated Michigan State Professor Lisa Cook and Davidson College Professor Philip Jefferson to fill the remaining open seats on the board. Cook would be the first Black woman to serve on the Fed's board while Jefferson would be the fourth Black man to do so.

Business Implications
The nomination of Raskin was seen a victory for progressive lawmakers in the Democratic party, who call for more stringent regulations on the US banking sector. Raskin has also been outspoken in pressing the Federal Reserve and other financial regulators to take a more proactive role to address the financial risks posed by climate change.

American banking institutions should be prepared for a much more assertive regulator if Raskin is confirmed. During her first stint on the Federal Reserve, Raskin helped create the initial regulations implementing the Dodd-Frank Act. She spoke out against the rollback of the Volcker Rule during Vice Chair Quarles' term and has called for reimposing capital requirements that were eased during the Trump Administration. It is expected that the Federal Reserve will re-impose many of the rules that were rolled back in the last four years, as well as pursuing new rules pertaining to cryptocurrency and climate change. The Federal Reserve's long awaited position paper on digital assets was released this past Thursday and sets the stage for an executive order related to cryptocurrency and digital assets that is expected to be released by the White House in the coming weeks.

Behnam confirmation & pending nominations move CFTC toward full strength, robust regulatory agenda

In mid-December, the US Senate unanimously confirmed Rostin Behnam to be the chairman of the Commodity Futures Trading Commission (CFTC). Behnam had previously been running the commission as acting chair. His new term will extend to 19 June 2026.

Republican Commissioner Dawn DeBerry Stump will not seek another five-year appointment when her current term ends in April 2022, which would leave Behnam as the sole active commissioner. To alleviate the shortfalls on the commission, President Biden nominated Democrats Kristin Johnson and Christy Goldsmith Romero, and Republican nominees Caroline Pham and Summer Mersinger. All four had their confirmation hearings in front of the Senate Agriculture Committee in early January and await votes by the Senate.

Business Implications
Once these nominees are confirmed, there is a strong expectation that Behnam will pursue a robust regulatory and enforcement agenda.

The CFTC returning to full strength will come at a time in the Biden administration when policy making is expected to increasingly move away from the legislative arena to regulatory agencies. Before the end of this year, there is no serious expectation that the House and Senate will take up any bills significantly impacting the derivatives market or dealing with cryptocurrencies. It is far more likely that the CFTC or Securities and Exchange Commission (SEC) will take the lead in issuing regulations targeting cryptocurrencies and digital assets.

Another top priority for Behnam is climate change. He is expected to pursue new rules targeting companies Environmental, Social and Governance (ESG) ratings and climate-risk disclosures.

Dems take control of FDIC as Chairwoman McWilliams resigns

Federal Deposit Insurance Corporation (FDIC) Chairwoman Jelena McWilliams, a holdover from the Trump Administration whose term was expected to last through the end of June 2023, announced her resignation effective 4 February after a combative year.

In the past, FDIC holdover chairs of the FDIC had either resigned upon a new administration taking office or acquiesced to the policy preferences of that administration. McWilliams chose to use her role to actively oppose Biden Administration priorities, including updates to the FDIC's merger approval process. Under her leadership, the FDIC pursued a wide range of deregulatory actions that the Biden Administration pledged to undo. In the past year, the FDIC has faced unprecedented disagreements between the chairwoman and FDIC board members.

Upon McWilliams' resignation, Democrats will gain formal control of the agency . Martin Gruenberg, FDIC chairman under the Obama Administration, will become the acting chairman.

Business Implications
A change in leadership at the FDIC could have a major impact on two important policy areas that have become a recent focus of the FDIC: cryptocurrency and climate change. In the past year, the FDIC co-authored a report with the Office of Comptroller of Currency (OCC) on behalf of the Presidential Working Group on Financial Markets (PWG) that called for Stablecoin operators to be regulated as depository institutions, particularly when the coins were backed or pegged to the value of the US dollar. It is expected that Gruenberg will continue to pursue Stablecoin regulations as the FDIC seeks to coordinate its efforts to regulate digital assets with other financial regulators such as the OCC, Federal Reserve, SEC and CFTC.

The likely biggest departure from McWilliams' tenure is related to policies regarding climate change. McWilliams abstained from a vote to adopt a report calling climate change an emerging risk to the financial system. Under Gruenberg, the FDIC will be expected to focus on climate change when performing stress tests of banks and may pursue rules that further regulate the ESG sector and climate-linked banking products.

OCC nominee withdraws after contentious hearing, a potential boon for digital-asset providers

Biden nominee Saule Omirova, Cornell University professor and former George W. Bush Treasury Department official, withdrew from consideration to head the OCC, which is responsible for overseeing some of the nation's largest banks.
Despite being supported by many progressives in the Democratic caucus, multiple Democratic senators— such as moderates Joe Manchin (D-WV), Jon Tester (D-MT), and Mark Warner (D-VA)—combined with a united Republican opposition to leave Omirova short of votes needed to make it out of the Senate Banking Committee.

Professor Omirova is a big proponent of a strong federal presence in the banking sector and favored robust regulation of large financial institutions. She is also a vocal proponent of additional regulations of cryptocurrencies and digital assets.

Business Implications
The failure of Omirova's nomination is seen as a boon for the financial sector and providers of digital assets. In the past, the OCC has been viewed as more deferential to the institutions it regulates than agencies like the SEC. Omirova promised to implement greater enforcement activities and impose more significant fines for wrongdoing. Additionally, Omirova promised to impose regulations targeting the nascent cryptocurrency and digital-asset businesses of its regulated entities.

The OCC is currently being managed by Acting Comptroller Michael Hsu, a former Federal Reserve official. In the past, Hsu has not advocated further federal government regulation of Stablecoins. But following his ascension to acting comptroller, he has called for increased regulation of these digital assets and made the case that regulation could lead to increased innovation. One of Hsu's first actions as acting comptroller was to order an agency-wide review of all the crypto-related guidance issued by the OCC under his Trump Administration predecessor.

Posted 25 January 2022 by Adam Goldberg, Regional Operations/SME Director, IHS Markit

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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