President Joe Biden's decision to nominate Cornell law professor Saule Omarova to regulate the nation's banks is triggering intense anxiety among the lenders and their Washington lobbyists and threatens to set off a bruising battle in Congress.
Omarova is more than just a finance industry critic — she has proposed essentially ending the banking industry as we know it by letting the Federal Reserve take on the deposit accounts of all Americans.
News of her nomination this week to be comptroller of the currency has touched off a scramble among Washington's powerful bank lobbying associations about whether to take the rare and risky step of speaking out against someone who could end up being the industry's top regulator. Groups including the American Bankers Association are plotting whether to publicly fight back or gin up opposition behind the scenes as their members raise alarms, according to more than a half-dozen industry sources.
“We have serious concerns about her ideas for fundamentally restructuring the nation’s banking system, which remains the most diverse and competitive in the world," American Bankers Association President and CEO Rob Nichols said in a statement.
The nomination risks opening up the biggest rift yet between bankers and Biden, who has been under pressure from the left to pick regulators with a clear track record of challenging Wall Street. So far, Biden's nominees for financial agencies, including the Securities and Exchange Commission and the Consumer Financial Protection Bureau, have largely aligned with the goals of the party's progressive wing. Omarova's appointment is another victory for industry critics like Sen. Elizabeth Warren (D-Mass.), though with widespread opposition from banks she might face a far more difficult path to confirmation than Biden's other nominees.
"Saule Omarova's nomination to lead the OCC is tremendous news," Warren said in a statement. "Saule is an excellent choice to oversee and regulate the activities of our nation's largest banks, and I have no doubt she'll be a fearless champion for consumers.”
As an academic, Omarova has argued that the financial system is dysfunctional and needs a fundamental reevaluation to make it "more inclusive, efficient and stable." Her solution — and the greatest source of angst among lenders because of what it reveals about her philosophy — is that the business of holding consumer deposits should be taken away from banks and run by the Federal Reserve.
Omarova said in a paper published in October that having Americans park their money at the Fed would allow the central bank to more directly and efficiently pull the levers of monetary policy by enabling it to credit individual citizens' accounts when there's a need to stimulate the economy. The system she envisioned would mark the end of the federal government's backing of bank deposits and other subsidies, meaning it would also eliminate the "too big to fail" problem in which Washington bails out big banks when they hit the skids.
"Banks, in other words, will not be ‘special' anymore," Omarova wrote. "By separating their lending function from their monetary function, the proposed reform will effectively ‘end banking,' as we know it."
If confirmed to run the Office of the Comptroller of the Currency — as the first woman and person of color to hold the job — Omarova would not have the power to reshape the Fed. But banks see her proposals as a clear indication of a likely crackdown on the industry, which has often enjoyed a cozy relationship with the agency.
Omarova told POLITICO earlier this year that large financial institutions “hold so much power now and they move so much money through their own channels that it is effectively impossible through just rules and some enforcement to really shape what it is they’re doing.”
In a message sent to bank executives Thursday, ABA's Nichols said Omarova had expressed "radical views" on how to restructure the banking system. He said his organization was already working with national and state trade associations "to ensure that the senators who will consider this nomination fully understand Professor Omarova's positions on these issues."
"Many of Dr. Omarova’s statements raise serious concerns about how she would oversee the well-regulated, well-supervised banking system, protect consumers and work with an industry critical to financing the American Dream for families and small businesses," Consumer Bankers Association spokesperson Lauren Bianchi said. "It is our hope these fundamental questions will be at the heart of any confirmation hearing in the U.S. Senate.”
Omarova, a native of Kazakhstan who served at the Treasury Department under former President George W. Bush and worked as a lawyer at Davis Polk, did not respond to a request for comment.
Bank trade groups typically stay out of public debates about nominees who may end up regulating their members. In the case of Omarova, lobbyists are inching toward breaking with that precedent.
Part of the industry's calculation is whether it's worth the inevitable political blowback banks would face by launching a public opposition campaign, with Omarova already facing a real risk of not being confirmed. She is likely to see universal opposition from Senate Republicans, and her confirmation will hinge on whether business-friendly Democrats are comfortable with her approach.
"If they do respond forcefully," a Senate GOP aide said of the banks, "then I think we'll find a more interesting conundrum for the moderate Democrats."
Spokespeople for some of the moderates that banks will target — Sens. Jon Tester (D-Mont.), Kyrsten Sinema (D-Ariz.) and Joe Manchin (D-W.Va.) — did not respond to a request for comment. Sen. Mark Warner (D-Va.) said he was not familiar with her background and that he wanted "to do a little bit of due diligence first." Warner, Tester and Sinema are all members of the Banking Committee, which will vet her nomination.
The same Democrats will face pressure to support Omarova from liberal groups like Americans for Financial Reform, which says she "has a broad sense of what financial regulation is about, both from the perspective of protecting consumers and guarding against systemic risk."
"I believe she may have some difficulty getting confirmed given her position on various policy issues," said Cam Fine, the former CEO of the Independent Community Bankers of America, which represents small banks. "At the very least it will be sometime next year before she would have a chance to get confirmed, which then runs her into the mid-terms. So we shall see how this plays out."
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