Dive Brief:

• Tensions flared among financial regulators after two Democratic members of the Federal Deposit Insurance Corp. (FDIC) board of directors — Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra and former FDIC Chair Martin Gruenberg — published a review of bank merger policies without the approval of FDIC Chair and Trump appointee Jelena McWilliams.
• At the heart of the debate are not only partisan arguments about bank mergers and acquisitions, but the rules binding the agenda-setting mechanism of the FDIC. McWilliams and other Republicans contend that only the chair controls the board’s agenda, whereas Chopra and Gruenberg argue that, collectively, a majority of directors also possesses that right.
• In a follow-up, the FDIC slammed the joint statement by Chopra and Gruenberg as an invalid affront to a "proud 88-year history of Board members working together in a collegial manner." Sen. Pat Toomey, R-PA, the ranking member of the Senate Banking Committee, went so far as to call the effort a failed "coup."

Dive Insight:

Chopra and Gruenberg's joint statement — which was published on the CFPB website rather than the FDIC’s — claimed the FDIC board had voted to "launch a review of the agency’s Bank Merger Act policies" and begin a 60-day public comment period.

The FDIC, helmed by McWilliams, snapped back that the agency had never approved the request for comment.

"There was no valid vote by the board, and no such request for information and comment has been approved by the agency for publication in the Federal Register," the regulator said in a press release.

Gruenberg, however, asserted he and Chopra are within their rights.

"It is clear under the statute that the majority of the FDIC Board of Directors has authority to place items on the agenda for Board meetings and, alternatively, to circulate and act on notational votes, to implement actions of the Board," Gruenberg told American Banker. "No individual member of the Board may override the authority of the majority."

The debate pits the chair of the FDIC against the rest of the agency’s board. The five-seat board is composed of McWilliams, Gruenberg, Chopra and Acting Comptroller of the Currency Michael Hsu. The role of vice chair is vacant. McWilliams is the board's only Republican member.

Hsu did not sign on to Chopra and Gruenberg's statement, though the statement implies his support.

An OCC spokesperson told Politico in a statement Hsu “has given the Bank Merger Act significant consideration” and that he “will continue to work collaboratively with other regulators on this and other issues.”

Lawmaker reaction

Since the dust-up, lawmakers have taken predictably partisan stances.

House Financial Services Chair Maxine Waters, D-CA, sent letters Friday urging bank regulators, including McWilliams, to “impose a moratorium on approving any large bank M&A over $100 billion while these reviews take place,” according to Politico.

Sen. Elizabeth Warren, D-MA, on Twitter, called the bank merger process “fundamentally broken.”

“It's time to end the rubber stamping by regulators. I'm glad the @FDICgov Board is exercising its authority,” she posted Thursday. “Over the last 30 years, the biggest banks have gotten even bigger — putting our entire financial system at risk.”

Republicans such as Toomey, meanwhile, lashed out at Chopra.

"This failed, publicity-seeking attempted coup is exactly the kind of lawless overreach that Senate Republicans warned about with Rohit Chopra," he said. "His reckless behavior today undermines the independence and integrity of the FDIC. It represents a radical politicization of a long-respected financial regulator."

Sen. Thom Tillis, R-NC, tweeted Thursday urging President Joe Biden to “immediately condemn this illegitimate effort to undermine and politicize an independent regulatory agency.”

A White House official told Politico, “we support the board’s decision to move forward with its action here.” 

“We do not think that the FDIC chair should try to block actions that the majority of the FDIC’s board of directors legitimately seek to pursue,” the official said.

In a curious twist, however, Tillis used the FDIC power struggle to accuse Chopra and Gruenberg of "trying to bully and intimidate an immigrant who was confirmed by the Senate on a broad bipartisan basis." McWilliams was born in Serbia.

Earlier in the week, however, Biden's pick to lead the Office of the Comptroller of the Currency (OCC), Saule Omarova, withdrew her nomination after it became clear she would face a difficult road to approval among Republican — some of whom pointed to her upbringing in the former Soviet Union as a factor. 

How deep is the divide?

A meeting of the FDIC board set for Tuesday may give the first indication of how deep the divide is between members.

Chopra and Gruenberg’s salvo could prompt GOP lawmakers to band together, however — making it tougher for more progressive nominees to take open regulatory posts at the Federal Reserve, the OCC or the open FDIC board spot. 

As for next steps, Chopra and Gruenberg could sue McWilliams, Bloomberg Law reported. But courts could opt not to take the case. 

McWilliams, meanwhile, could tighten her grip and block Democrats’ agenda items — effectively putting the agency at a stalemate, at least on controversial initiatives, until her term ends in 2023.

What Chopra and Gruenberg are asking

In their joint statement, Chopra and Gruenberg argued the Bank Merger Act requires that "regulators consider a transaction’s impact on financial stability," and asked "should we create more clarity and simplicity in the merger review process by establishing thresholds where banks of a certain size will receive heightened scrutiny?"

"Although there has been a significant amount of consolidation in the banking sector over the last thirty years, fueled in large part by mergers and acquisitions, there has not been a significant review of the implementation of the Bank Merger Act by the agencies in that time," Chopra and Gruenberg said, adding, "Under the federal banking laws, a bank’s ability to merge with or acquire another bank is a privilege, not a right."

Federal agencies have not formally denied a bank merger application in more than 15 years, according to the White House website.