Kuttner on TAP: Republican Hit Job on the FDIC Backfires

When Sen. Sherrod Brown (D-OH) blindsided fellow Democrats in mid-May by calling on beleaguered FDIC Chair Martin Gruenberg to resign over a long-standing pattern of sexual harassment by bank examiners, it looked as if Republicans on the FDIC and in Congress would succeed in placing that key regulatory agency in the hands of an acting Republican chair. But now, it’s evident that Brown’s caper is likely to produce major benefits for effective regulation.

After a few weeks of leaks and counter-leaks, and jockeying over who would be Gruenberg’s successor, the White House announced late last week that President Biden will appoint the most progressive and effective of the several contenders mentioned. She is Christy Goldsmith Romero, currently a Democratic commissioner of the Commodity Futures Trading Commission.

More importantly, she is the former special inspector general for the Troubled Asset Relief Program (SIGTARP), the program that spent $442 billion in bank bailout money after the 2008 financial collapse. She held the post for 12 years.

It turns out that this background is as good a credential for being a tough bank regulator as it gets. According to SIGTARP’s latest report to Congress, the little-known agency under Goldsmith Romero’s leadership was superb at digging deep into bank scams to uncover episodes of fraud. SIGTARP investigations coordinated with the Justice Department and other law enforcement agencies to criminally prosecute 474 defendants, of whom 326 were sent to prison, including 75 bankers. The agency recovered $11.4 billion in fines and civil damages, a ratio of 27 to 1 relative to SIGTARP’s operating costs.

Goldsmith Romero still has to get confirmed, but Brown, the Banking Committee chair, has issued an enthusiastic statement of support and is expected to schedule early hearings. As insurance, Gruenberg continues to serve as chair until his successor is confirmed. So Republicans and corporate Democrats lose by blocking her confirmation almost as much as by allowing it.

Goldsmith Romero will need to fundamentally reform the FDIC’s culture of sexist abuse that led to Gruenberg’s ouster. It’s clear from her tough work at SIGTARP that she has the leadership skills to achieve that.

Just as importantly, the FDIC will be a key player in several pending regulatory actions, including one on all-important bank capital standards. Given the bankers’ propensity for fraud that she has witnessed and prosecuted at SIGTARP, Goldsmith Romero is likely to be at least as aggressive as Gruenberg.

Not surprisingly, a key behind-the-scenes player in the White House decision to give Goldsmith Romero the nod was Sen. Elizabeth Warren (D-MA). In her earlier career, Warren chaired the Congressional Oversight Panel for TARP, and the two worked closely together. When the appointment was announced, Warren was jubilant.

“She has the kind of independence that we want from regulators,” Warren told reporters. “She doesn’t constantly look over her shoulder to see who’s got money or influence. She does what the law tells her to do and she does it without fear or favor—my kind of gal.”