Is Trump going to merge the bank regulators?

Mea Culpa. When I wrote that the firing of the two democrat board members at the National Credit Union Administration was a toe in the water by the president to firing Jerome Powell I may have been half right. NCUA board members are on the same regulatory plane as the governors of the Federal Reserve. Therefore, the president firing members of the NCUA board is akin to firing a member of the Fed’s board of governors. However, since NCUA regulates credit unions and not banks, the firings have gone mostly unnoticed outside the credit union industry. Markets were not roiled.  Elizabeth Warren who is the ranking minority on the Senate Banking Committee issued a rather mild and tepid statement, “President Trump just fired two Board Members at the National Credit Union Administration in his continued attack on American consumers. This is the latest attempt by Trump to skirt the rule of law, undermine independent agencies, and illegally purge the government of those who work for the American people.” Ho hum. Contrast this with her statement on the president’s attempt to eliminated the Consumer Financial Protection Bureau, “President Trump just gutted almost all CFPB staff, so the agency can’t do its job of helping Americans who get scammed by big banks and giant corporations. Dismantling the CFPB in the face of a court order blocking an illegal shutdown is yet another assault on consumers and our democracy by this lawless Administration, and we will fight back with everything we’ve got.” Apparently, the NCUA firings did not merit “fighting back with everything we’ve got.”

President Trump’s actions may have been a test run to firing the governors of the Fed but it still remains a puzzle as to why he was so loudly indicating that he would fire Jay Powell. Yes if he did it would crash markets worldwide, admittedly a bad thing. It would have prompted an immediate test in the courts. But a more simple action would be to fire Powell from his chairmanship of the Fed while leaving him in place as a governor. That way the president could get ride of Powell as chairman and replace him with Fed governor Michelle Bowman. I think it is weird that there is nothing on this in the media. Surely Trump’s people must have thought of this. Right?

But in addition to testing whether a governor can be fired, Trump’s actions may actually be a prelude to merging the banking agencies. Let us assume that he does not replace the NCUA board members. Then the board cannot function for lack of a quorum. Then he could announce his intention to consolidate NCUA and the banking agencies. For instance, all regulatory functions could be merged into the Treasury Department’s Office of the Comptroller of the Currency – another one of my old agencies. NCUA is the Fed, FDIC and OCC rolled into one. It regulates, insures and charters credit unions. So why do we need three banking agencies to do the same things only one at a time? Strip away all the Fed’s regulatory functions and let it do only monetary policy. Merge those functions and the FDIC into the OCC, which now regulates and charters national banks. However leave NCUA as a standalone agency. Credit unions are fundamentally different from banks. The assets of all the credit unions in the country are less than that of each of the three largest US banks. Yes there are some relatively large credit unions, but in the main credit unions are too small to be regulated as banks. 

What about savings banks? Once they were called savings and loan associations and were regulated by the Office of Thrift Supervision. After the OTS was dissolved in 2010, the responsibilities of regulating the S&Ls were divided among the Fed (S&L holding companies, the OCC (federal savings associations) and the FDIC (state-chartered savings associations). BTW, I was appointed to be one of the four public interest members of the committee mandated by the Dodd-Frank Act to oversee the merger of the Federal Savings and Loan Insurance Corporation (FSLIC) into the FDIC. There are some that will argue that the same can be done with credit unions and although I disagree, that remains a real possibility.

It just seems reasonable to think that if the president is so intent on eliminating duplication within the Federal government, then merger of the bank regulators should be on the table.