President-elect Donald Trump will have a lot of vacancies to fill at the ten independent financial regulatory agencies1, and his choices could have a major impact on the regulation of Wall Street. It is not clear whether Congress will be able to agree on a package of changes to the Dodd-Frank Act and other post-crisis reforms, but even without congressional action, regulators will have wide latitude to reinterpret or roll back new rules and regulations.
Many Vacancies Already Exist, and More Are on the Way
Across the ten agencies, there are 34 Senate-confirmable positions that are held by 28 individuals. The difference results from those holding the positions of chair of the Commodity Futures Trading Commission (CFTC); the chair and vice chair of the Federal Deposit Insurance Corporation (FDIC); and the chair, vice chair, and vice chair for supervision of the Federal Reserve Board (Fed Board) having to be confirmed twice, first as members of those agencies and then again to those leadership positions. According to BPC’s Nominations Tracker, there are already nine vacancies at these agencies:
These nine positions will be filled by eight individuals because the vice chairman for supervision at the Fed Board would also be a Fed Board governor. The vacancies for eight individuals means that these agencies are already, collectively, missing over one-quarter of their full membership. The Senate confirmed nine people for eleven of these positions between December 2013 and June 2014, but has not confirmed anyone to those positions since. Of those nine vacancies, President Obama has yet to nominate anyone to fill open positions for Fed Board vice chairman for supervision (vacant since it was created in July 2010) or FDIC director (vacant since June 2015).
More vacancies are likely to open up soon. The following table lists the term expiration dates of the 20 confirmed individuals now in office, as well as the expiration dates for the chair and vice chair of the Fed Board:
If history is a good guide, many of these individuals will not serve out the full length of their terms. Securities and Exchange Commission (SEC) Chair Mary Jo White, for one, has announced she will step down in January even though her term does not end until 2019. FDIC Chairman Martin Gruenberg has said he intends to serve out his full five-year term as chairman, but his six-year term as an FDIC director does not end until 2018. Fed Board governors are confirmed to 14-year terms, but most do not serve nearly that long.
If history is a good guide, many of these individuals will not serve out the full length of their terms.
By law, many of the officials who serve in these positions are allowed to serve after their terms have expired, usually until a successor is appointed and confirmed. However, they are sometimes unwilling to do so if the president does not want them to continue. The comptroller of the currency may be removed by the president, upon reasons to be communicated to the Senate. The director of the Federal Housing Finance Agency (FHFA) and Fed Board members may be removed by the president for cause. The director of the Consumer Financial Protection Bureau (CFPB) can also be removed by the president for cause, but the constitutionality of that provision is currently being adjudicated. There is no provision for the Independent Member of the Financial Stability Oversight Council (FSOC) to serve beyond the expiration of their term.
How, and How Quickly, Trump Can Affect Agency Control
The question of when existing regulators leave office is an important one. The current occupants of these positions have been deeply involved in building the post-crisis financial regulatory structure, which is one that Trump and many Republicans have said they want to “dismantle.”
So, it will have an impact when Republicans?or more specifically, Trump appointees, assuming none of these vacancies are filled before he takes office?will gain voting control of these agencies. When that is likely to happen varies by agency:
Unlike the other multi-member agencies mentioned here, the Fed Board is non-partisan. Trump will nominate people more friendly to his philosophy to the board, but they will be outnumbered by the existing five governors?if none of them resign?for the time being. Because of the lengthy terms to which they are appointed, none of those five governors have terms that expire before 2020.
While Janet Yellen’s term as governor runs until 2024, her term as chair runs out in early 2018. She recently said she will finish out her term as chair. Traditionally, chairs step down as governors once their term as chair ends, although Marriner Eccles remained on the board until 1951 despite having resigned as chair in 1948, a time when the Fed Board did not have as much independence or importance as it does today.
The Fed Board has not had a vice chairman for supervision since Dodd-Frank created the position more than six years ago to elevate the importance of bank supervision at the agency. Governor Tarullo has in many ways effectively acted in that role as head of the Fed Board’s Committee on Bank Supervision. However, a new vice chairman for supervision?who could be chosen from among the existing governors or one of the new nominees?would presumably take over as lead of the Fed Board on these matters. As with Yellen (and Vice Chairman Fischer), the question then is whether Tarullo decides to stay on in a different role.
The board has long been consensus-driven. While regional Fed bank presidents who sit on the Fed’s Federal Open Market Committee have frequently dissented on monetary policy votes, the same is not true for governors. In the past 20 years, there has only been one dissent by a governor on a monetary policy vote, that one in 2005 after Hurricane Katrina. Will that tradition continue? Should it?
The CFTC, the SEC, and the National Credit Union Administration (NCUA) are all commissions or boards with current vacancies and limits on the number of positions that may be filled by people affiliated with a single political party. Assuming those positions are not filled before he takes office, Trump can immediately shift the agencies to Republican control by filling those vacancies. In addition, unlike the chairmanship of the CFTC, which is a separately confirmable position, the president can designate any existing NCUA director and any existing SEC commissioner as the chairs of those agencies, thus immediately altering their leadership. The SEC may be the top priority, in part because once White leaves, the commission will require the support of all of its remaining members to conduct business.
The FDIC is a different case. The agency may not have more than three board members from a single political party. Gruenberg is a Democrat and Hoenig a Republican. Filling the existing FDIC vacancy with a Republican would mean that there would be two confirmed Republican FDIC directors. However, the FDIC board also includes the director of the CFPB and the comptroller of the currency. If both of those positions are later filled by Republicans, one of the directors would need to leave to avoid having four Republicans on the FDIC’s board.
There are no current vacancies for heads of single-director agencies, but the terms for Comptroller Thomas Curry and FSOC Independent Member Roy Woodall expire in 2017. The terms of FHFA Director Melvin Watt and Office of Financial Research Director Richard Berner do not expire until the beginning of 2019.
In the case of the CFPB, a recent court decision may allow the new president to remove the current director from office, but the Bureau has appealed that decision, leaving the status of Director Richard Cordray’s position murky despite his term not expiring until mid-2018.
Because of the way independent financial regulatory agencies are structured, and the number of vacancies that already exist, President-elect Trump should be able to fill most of these agencies with his appointees by the end of 2017. The Fed Board may take longer, depending on when the existing five governors choose to leave. Amid the uncertainty of timing, Trump’s appointments will have a major impact on the future of the post-crisis financial regulatory structure.
1 This includes the Commodity Futures Trading Commission (CFTC), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), the Federal Reserve Board of Governors (Fed Board), the Financial Stability Oversight Council (FSOC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Financial Research (OFR), and the Securities and Exchange Commission (SEC).
2 Note that while we know the length of each term and the date each person was confirmed to a given position, term expirations for terms without specified end dates generally date from when an official is sworn in. Most of the dates listed here have been confirmed but a few have not been.
3 Massad is also chair of the CFTC and was separately confirmed by the Senate in that position. However, while the terms for commissioners are fixed at five years, there is no fixed term for the chair. The chair must be a member of the commission.
4 In addition to their terms as FDIC directors, Martin Gruenberg and Thomas Hoenig were confirmed by the Senate to be chair and vice chair, respectively, of the FDIC on November 15, 2012. The term of the chair is set at five years, while the vice chair position does not have a set term. Any person confirmed to a position on the FDIC is allowed to continue to serve until a replacement has been appointed and confirmed.